<PAGE>
As filed with the Securities and Exchange Commission on May 20, 1996
----
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission File No. 0-18806
DMX INC.
(Exact name of Registrant as specified in its Charter)
Delaware 95-4275106
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11400 WEST OLYMPIC BOULEVARD, SUITE 1100, LOS ANGELES, CA 90064-1507
(Address of Principal Executive Offices) (Zip code)
(310) 444-1744
(Registrant's telephone number, including area code)
________________________
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 such
filing requirements for the past 90 days. Yes X No
---- -----
At March 29, 1996, the Registrant had 44,094,970 shares of its Common Stock
outstanding, excluding 85,630 shares held as Treasury Stock.
Total number of pages in this report, including cover page is 23.
----
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
DMX INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
WITH COMPARATIVE FIGURES AT SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
March 31, 1996 September 30, 1995
-------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 272,488 8,622,119
Securities held to maturity - 165,000
Prepaid expenses and equipment inventory 582,429 377,176
Accounts receivable:
Trade related party 2,211,371 1,876,453
Other trade 2,955,483 1,893,020
Other - 45,692
Allowance for doubtful accounts (856,802) (856,802)
------------- ---------------
Receivables - net 4,310,052 2,958,363
------------- ---------------
Total current assets 5,164,969 12,122,658
Investment in Galactic/TEMPO Sound (note 2) 488,170 456,929
Property and equipment, net (note 5) 4,349,060 4,336,378
Other assets 295,492 166,419
------------- ---------------
TOTAL ASSETS $ 10,297,691 17,082,384
============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,470,445 1,182,878
Accrued liabilities 2,782,455 1,449,938
Notes payable to related party (note 6) 2,500,000 -
Short-term note payable to bank - 45,000
Note payable 201,090 201,090
Current portion of capital lease obligations 349,191 371,136
------------- ---------------
Total current liabilities 7,303,181 3,250,042
Deferred revenue 318,977 376,395
Royalty payable 1,540,657 1,251,983
Investment in DMX-E (note 3) 18,814,752 15,886,116
Capital lease obligations 1,346,325 1,446,085
Stockholders' deficit:
Common Stock, $.01 par value. Authorized
100,000,000 shares; issued 44,180,600
shares at March 31, 1996 and
43,680,600 shares at September 30, 1995 441,806 436,806
Paid-in capital 100,480,560 99,210,706
Accumulated deficit (119,413,237) (104,224,136)
Foreign currency translation reserve 42,673 26,390
Treasury stock, 85,630 shares, at cost (578,003) (578,003)
------------- ---------------
Net stockholders' deficit (19,026,201) (5,128,237)
Commitments and contingencies (note 7) - -
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 10,297,691 17,082,384
============= ===============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
DMX INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Revenues:
Subscriber fee revenues - related party $ 4,353,559 3,924,944
Subscriber fee revenues - other 3,159,978 2,113,431
Other revenue, net 119,226 -
------------ ----------
7,632,763 6,038,375
Operating expenses:
General and administrative 2,779,077 2,305,676
Sales and marketing 4,696,127 2,947,222
Studio and programming 4,505,277 3,761,087
International development - 72,314
Research and development 416,912 296,259
Stock bonus and option compensation 274,854 274,854
Depreciation and amortization 805,762 630,428
------------ ----------
13,478,009 10,287,840
Net operating loss (5,845,246) (4,249,465)
Other income (expense):
Galactic/TEMPO Sound 31,241 144,736
Equity in loss of DMX-E (9,486,767) (4,563,203)
Interest income 74,633 136,740
Interest expense (100,042) (107,306)
Other income, net 137,080 98,614
------------ ----------
(9,343,855) (4,290,419)
Net loss $(15,189,101) (8,539,884)
============ ==========
Loss per share $ (.35) (.23)
============ ==========
Weighted average number of shares 43,727,048 36,872,908
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
DMX INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Revenues:
Subscriber fee revenues - related party $ 2,209,613 1,999,893
Subscriber fee revenues - other 1,669,996 1,076,866
Other revenue, net 82,686 -
----------- ----------
3,962,295 3,076,759
Operating expenses:
General and administrative 1,265,837 1,245,026
Sales and marketing 2,454,328 1,510,872
Studio and programming 2,414,383 1,918,323
International development (8,132) 33,400
Research and development 199,442 104,673
Stock bonus and option compensation 137,427 137,427
Depreciation and amortization 425,436 314,048
----------- ----------
6,888,721 5,263,769
Net operating loss (2,926,426) (2,187,010)
Other income (expense):
Galactic/TEMPO Sound 62,937 87,518
Equity in loss of DMX-E (4,979,266) (2,524,153)
Interest income 15,791 69,629
Interest expense (57,809) (52,524)
Other income, net 68,068 44,709
----------- ----------
(4,890,279) (2,374,821)
Net loss $(7,816,705) (4,561,831)
=========== ==========
Loss per share $ (.18) (.12)
=========== ==========
Weighted average number of shares 43,774,007 37,478,378
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
DMX INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM SEPTEMBER 30, 1994 TO MARCH 31, 1996
<TABLE>
<CAPTION>
Common Stock Foreign
---------------------- currency
Number of Paid in Accumulated Treasury translation
shares Amount capital deficit stock reserve Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 36,280,600 $362,806 $ 81,543,456 $ (81,144,607) $(578,003) $ - $ 183,652
Issuance of common stock 7,400,000 74,000 17,188,500 - - - 17,262,500
Cost of issuance - - (70,958) - - - (70,958)
Accrued compensation - - 549,708 - - - 549,708
Foreign currency translation
reserve - - - - - 26,390 26,390
Net loss - - - (23,079,529) - - (23,079,529)
--------------------------------------------------------------------------------------------------
Balance at September 30, 1995 43,680,600 $436,806 $ 99,210,706 $(104,224,136) $(578,003) $ 26,390 $ (5,128,237)
Issuance of common stock
(unaudited) 500,000 5,000 995,000 - - - 1,000,000
Accrued compensation - - 274,854 - - - 274,854
(unaudited)
Foreign currency translation
reserve (unaudited) - - - - - 16,283 16,283
Net loss (unaudited) - - - (15,189,101) - - (15,189,101)
--------------------------------------------------------------------------------------------------
Balance at March 31, 1996
(unaudited) 44,180,600 $441,806 $100,480,560 $(119,413,237) $(578,003) $ 42,673 $(19,026,201)
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
DMX INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,189,101) (8,539,884)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 805,762 630,427
Equity in loss (earnings) of Galactic/TEMPO Sound (31,241) (144,736)
Equity in loss of DMX-Europe N.V. 9,486,767 4,563,203
Compensation expense for stock bonus and options 274,854 274,854
Increase in prepaid and other current assets (205,253) (172,104)
Increase in receivables (1,351,689) (125,171)
Increase in other assets (129,073) (34,120)
(Decrease) increase in deferred revenue (57,418) 14,846
Increase in royalty payable 288,674 272,874
Increase (decrease) in accounts payable and accrued liabilities 1,620,084 (213,258)
------------ ----------
Net cash used in operating activities (4,487,634) (3,473,069)
------------ ----------
Cash flows from investing activities:
Purchase of property and equipment, net (765,365) (146,238)
Advances to DMX-Europe N.V., net (551,848) -
Investment in preferred stock of DMX-Europe (UK) Limited (5,990,000) -
Proceeds from securities held to maturity 165,000 2,064,738
Dividend from Galactic/TEMPO Sound - 125,000
------------ ----------
Net cash (used in) provided by investing activities (7,142,213) 2,043,500
------------ ----------
Cash flows from financing activities:
Issuance of common stock, net 1,000,000 6,964,074
Proceeds from note payable to related party 2,500,000 -
Repayment of note payable to bank (45,000) (120,000)
Repayment of note payable - (90,727)
Repayment of principal portion of capital lease obligation (174,784) (212,541)
------------ ----------
Net cash provided by financing activities 3,280,216 6,540,806
------------ ----------
Net (decrease) increase in cash and cash equivalents (8,349,631) 5,111,237
Cash and cash equivalents, beginning of year 8,622,119 3,483,620
------------ ----------
Cash and cash equivalents, end of year $ 272,488 8,594,857
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION.
- --- ---------------------
The accompanying consolidated balance sheets of DMX Inc. (the Company) at
March 31, 1996, the related consolidated statements of operations for the
six months and three months ended March 31, 1996 and 1995, and related
statements of cash flows and stockholders' equity (deficit) for the six
months ended March 31, 1996 are unaudited. However, such information
reflects all normal recurring adjustments which, in the opinion of
management, are necessary to present fairly the Company's financial
position at March 31, 1996. The results of operations for the six months
and three months ended March 31, 1996 and 1995, are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year. The accompanying financial information for the six months and
three months ended March 31, 1996 and 1995, should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's September 30, 1995, Form 10-K.
Certain reclassifications of prior period amounts were made to conform to
the current period reporting format.
(2) INVESTMENT IN GALACTIC/TEMPO SOUND PARTNERSHIP.
- --- ----------------------------------------------
The summarized balance sheet and operating data for the six months ended
March 31, 1996, and the year ended September 30, 1995, of the
Galactic/TEMPO Sound Partnership follows:
<TABLE>
<CAPTION>
Six months ended Year ended
March 31, 1996 September 30, 1995
(Unaudited) (Unaudited)
--------------------------------------
<S> <C> <C>
Current assets $982,580 828,804
Non-current assets 159,338 186,747
Current liabilities /(a)/ 165,578 101,694
Partners' capital 976,340 1,513,857
Partners' draws - (600,000)
Revenues /(a)/ 993,756 1,903,178
Operating expenses 931,273 (1,289,898)
Net income $ 62,483 613,280
======================================
</TABLE>
(a) Revenues from subscribers that are billed in advance are recorded as
unearned revenue. Unearned revenue included with current liabilities
is recognized as income when earned on a pro rata basis as services are
provided.
7
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVESTMENT IN AND ADVANCE TO DMX-EUROPE N.V. AND SUBSIDIARY.
- --- -----------------------------------------------------------
The summarized consolidated balance sheets and operating data for the six
months ended March 31, 1996, and the year ended September 30, 1995, of
DMX-Europe N.V. and subsidiary follow:
<TABLE>
<CAPTION>
Six months ended
March 31, 1996 Year ended
(Unaudited) September 30, 1995
---------------------------------------
<S> <C> <C>
Current assets $ 2,218,238 1,989,314
Non-current assets 1,768,677 2,109,234
Current liabilities 9,384,260 7,705,267
Non-current liabilities 30,353,903 28,664,046
Partners' equity (deficit) (35,759,215) (32,262,449)
Foreign currency translation reserve 7,967 (8,316)
Revenues 411,442 151,177
Operating expenses 9,898,208 (19,864,196)
Net loss $ (9,486,766) (19,713,019)
=======================================
</TABLE>
DMX-Europe N.V., a Netherlands corporation, and its wholly owned
subsidiary, DMX-Europe (UK) Limited, a United Kingdom company, ("DMX-E"),
formerly known collectively as, International Cablecasting Technologies
Europe N.V., were formed in 1992 by the Company to provide the necessary
management, marketing services and operating structure for the launch of
Digital Music Express(R) ("DMX(R)"), throughout Europe.
In 1993, the Company entered into an agreement with TCI-Euromusic, Inc.
("TCI-E"), an affiliate of Tele-Communications, Inc. ("TCI"), for the
acquisition of a 49% equity interest in DMX-E through the purchase of 49%
of the outstanding common stock of DMX-E for $120,100, in addition to
TCI-E's commitment which provided up to $25 million through a credit
facility to be used to fund the start-up costs and initial operations of
DMX-E. All significant decisions, including the appointment of the Managing
Director, issuance of any new debt (other than from TCI-E) and approval of
the operating budget and funds required from TCI-E, required approval by
80% of the Board of Directors. Although the Company owned 51% of DMX-E, the
Company did not control the Board of Directors or the operations of DMX-E
and, accordingly, has accounted for its investment using the equity method.
During the fiscal year ended September 30, 1995, DMX-E fully utilized all
funds available under the TCI-E credit facility. Subsequently, in the
fourth quarter of the fiscal year ended September 30, 1995 and in the six
months ended March 31, 1996, the Company recognized 100% of DMX-E's loss as
the operating losses of DMX-E for those periods were and will be funded by
the Company .
Non-current liabilities at March 31, 1996 and September 30, 1995 include
principal of $24,436,000 and $24,436,000 and accrued interest of $5,918,000
and $4,228,000, respectively, provided under the credit facility by TCI-E.
The $24,436,000 credit facility provided by TCI-E was secured by the assets
of DMX-E and partially guaranteed by the Company. Pursuant to the
agreement, in the event of default by DMX-E, the Company would become
liable for one-half (1/2) of TCI-E's "loss", as defined in the agreement,
which may be payable at the option of the Company, in the Company's Common
Stock.
8
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVESTMENT IN AND ADVANCE TO DMX-EUROPE N.V. AND SUBSIDIARY, CONTINUED.
- --- ----------------------------------------------------------------------
On May 17, 1996, DMX Inc. consummated the merger of TCI-Euromusic, Inc.
("TCI-E") pursuant to the terms of the Agreement and Plan of Merger ("the
Agreement"), dated August 28, 1995, as amended as of November 1, 1995 and
January 17, 1996 between the Company, TCI-E and United Artists Programming
International, Inc. ("UAPI"), which provides, among other things, for the
merger of TCI-E with and into the Company, with the Company as the
surviving corporation (the "Merger"). Pursuant to the terms of the
Agreement and the Merger; (i) DMX-E's indebtedness to TCI-E under the
credit facility will be canceled and converted into intercompany notes
payable to the Company and (ii) each share of TCI-E Common Stock, $1.00 par
value, issued and outstanding immediately prior to the effective time of
the Merger was converted into approximately 10,841.62 shares of common
stock. The Company issued to UAPI, an indirect wholly owned subsidiary of
Tele-Communications International, Inc. ("TCI-I"), which is a majority
owned subsidiary of Tele-Communications, Inc. ("TCI"), owner of all the
outstanding shares of TCI-E. As a result of the merger, the Company
acquired the remaining 49% interest in DMX-E and the financial statements
of DMX-E will be consolidated with those of the Company. TCI-E, a special
purpose company established to hold UAPIs investment in DMX-E, conducted no
business activity other than holding the 49% interest in DMX-E and notes
due from DMX-E and the Company.
During the six months ended March 31, 1996 and year ended September 30,
1995, the Company charged DMX-E approximately $552,000 and $3,816,000,
respectively, for expenses incurred by the Company on DMX-E's behalf and
the Company received no reimbursements from DMX-E for the six months ended
March 31, 1996 and $2,262,000 of reimbursements for the year ended
September 30, 1995. At March 31, 1996 and September 30, 1995 amounts
aggregating $2,596,000 and $2,044,000, respectively, related to those
unreimbursed expenses, and were included in the Companys investment in DMX-
E. During March 1996 and April 1996, the Company was issued redeemable,
noncumulative, convertible, preference stock by DMX-Europe (UK) Limited for
its advances totaling $9,490,000 at March 31, 1996 and $3,500,000 at
September 30, 1995. These funds were used to fund operations and were
recorded with the Company's investment in DMX-E in the accompanying
consolidated balance sheets. Subsequent to March 31, 1996, the Company
purchased an additional $550,000 of preferred stock of DMX-Europe (UK)
Limited. The shares give a preferential right to receive a 5% dividend in
the event a dividend is declared by DMX-Europe (UK) Limited in priority to
ordinary shares and have no voting rights.
(4) STOCKHOLDERS' (DEFICIT) EQUITY.
- --- ------------------------------
STOCK OPTIONS AND COMMITMENTS.
------------------------------
The Company has issued options to purchase common stock to certain
directors, officers and employees under various stock option plans. The
option prices represent fair market values at the date of grant.
Transactions in stock options under these plans are summarized as follows:
9
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Shares Option price
---------- ---------------------------------------
<S> <C> <C>
Outstanding options at
September 30, 1995 4,395,833 $1.95 - $6.25 per share, expiring on
various dates, December 31, 1996 to
July 1, 2006
Expired options (15,000) $4.18 per share
Options issued 100,000 $2.563 per share, expiring on
--------- various dates in October 2005
Outstanding options at
March 31, 1996 4,480,833 $1.95 - $6.25 per share, expiring on
========= various dates, December 1996 to
July 2006.
</TABLE>
At March 31, 1996, options to purchase 3,264,166 shares were exercisable at
prices ranging from $1.95 to $6.25 per share, and 2,967,916 of the
exercisable options were held by officers and directors of the Company.
Subsequent to March 31, 1996, an option to purchase 50,000 shares at $2.56
per share was canceled and options to purchase 150,000 shares at $1.95 were
exercised.
(5) PROPERTY AND EQUIPMENT.
- ---- -----------------------
Property and equipment as of March 31, 1996, and September 30, 1995,
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1996
(Unaudited) September 30, 1995
------------------------------------
<S> <C> <C>
Furniture and equipment $ 2,782,246 2,041,147
Leasehold improvements 182,343 186,573
Studio equipment 4,053,549 4,041,594
Music library 874,312 845,218
Computer system 530,910 498,411
---------------------------------
8,423,360 7,612,943
Less accumulated depreciation and
amortization (4,074,300) (3,276,565)
---------------------------------
$ 4,349,060 4,336,378
=================================
</TABLE>
At March 31, 1996, studio equipment included approximately $317,000 in
equipment, net of accumulated depreciation of $403,000, that is being
leased to DMX-E for a monthly fee of approximately $23,000 through May
1996. Lease income related to equipment leased to DMX-E for the six months
ended March 31, 1996 and 1995 was $137,520 and $107,610, respectively, and
is included in other income.
Studio equipment for the Company's studio and uplinking facility in
Littleton, Colorado of $1,417,500, net of accumulated depreciation of
$704,000, at March 31, 1996 was financed under the capital lease obligation
with Western Tele-Communications, Inc., a subsidiary of TCI.
10
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) NOTE PAYABLE.
- --- -------------
In the February 1996, the Company entered into a six month Promissory Note
Agreement ("Note") with TCI Communications, Inc. for $2.5 million. The Note
bears interest at the prime rate plus 1%, 9.25%, at March 31, 1996, and is
due on August 5, 1996.
(7) COMMITMENTS AND CONTINGENCIES.
- --- -----------------------------
The Company has guaranteed certain contracts of DMX-E related to their
uplink services agreement and subscriber management services agreement. To
the extent DMX-E is unable to perform under the agreements, certain
creditors of DMX-E may pursue claims against the Company under the
guarantees. A claim under the guaranty of DMX-E's obligation to indemnify
British Sky Broadcasting under the uplink services agreement could
potentially approximate $l.5 million. The Company has guaranteed certain
other obligations of DMX-E. The Company cannot estimate the amount of any
potential claims at this time; however, such liabilities could have a
material adverse effect upon the financial position and results of
operations of the Company.
As described below in note 8, the Company is exploring its options to fund
the expected continuing losses of DMX-E; however, to the extent that
outside financing is not available, the Company may terminate the European
operations. In such circumstances, claims may be filed under the guarantees
discussed above.
From time to time the Company may be a party to legal actions arising in
the ordinary course of business, including claims by former employees. In
the opinion of the Company's management, after consultation with counsel,
the disposition of such matters is not expected to have a material adverse
effect upon the financial position or results of operations of the Company.
(8) LIQUIDITY AND CAPITAL RESOURCES.
- --- -------------------------------
During the six months ended March 31, 1996, the Company generated funds
through financing activities that included proceeds of $1.0 million from
the sale of its common stock to a director-stockholder and a $2.5 million
short term working capital note from TCI. The net decrease in cash of $8.3
million, net of the financing activities, for the six months ended March
31, 1996, was attributed to cash used in investing activities of $7.1
million, relating primarily to the funding of DMX-E losses, and cash used
in operating activities of $4.5 million.
Management believes that the Company will begin to generate cash from its
non European operating activities on a prospective basis and subsequent to
March 31, 1996, has reduced operating expenses and capital spending to
extend the US operation's working capital. However, the Company will need
additional funding to continue to expand and develop the Company's business
pursuant to management's current plans and to fund the expected continuing
losses of DMX-E. Management believes that the Company has access to
additional debt or equity financing sufficient to fund current operations.
However, there can be no assurance that such financing will be obtained. In
the event such financing is not obtained, management would continue to
reduce operating expenses and capital spending as necessary and would
consider terminating the European operations as a means to stem cash
shortfalls. These operating expenses include both discretionary spending,
such as sales and marketing expenses and overhead costs, such as general
and administrative expenses. Such expenses will continually be evaluated
giving consideration to the cash flow generated from subscriber fee
revenue, anticipated growth in such revenue, and available working capital.
Subsequent to March 31, 1996 and concurrent with the close of the merger
transaction to acquire the remaining 49% interest in DMX-E, the Company
completed a sale of 4.5 million shares of common stock to TCI for $9.0
million of which $5.0 million will be used to pay outstanding debts and
accounts payable of DMX and DMX-E. The remaining proceeds from the stock
sale to TCI will be used to fund
11
<PAGE>
DMX INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
the operations of DMX and DMX-E in the immediate future. During that time,
the Company continues to seek other financing arrangements to fund the
expected continuing losses of DMX-E. However, to the extent that outside
financing is not available, the Company would have to trim operating costs
to an extent sufficient to eliminate cash losses. Such measures may require
termination of the European operations. In such a circumstance, claims may
be filed under the Company's guarantees of certain DMX-E obligations. See
Note 7 to Consolidated Financial Statements.
(9) SUBSEQUENT EVENT.
- --- ----------------
At March 31, 1996 and at September 30, 1995, the Company did not meet
certain requirements for continued listing on The Nasdaq National Market,
and will be delisted unless arrangements to meet those requirements can be
completed. The Company has requested an extension of time to comply with
those requirements, and has also taken steps to qualify for transfer to The
Nasdaq SmallCap Market.
12
<PAGE>
DMX INC.
AND SUBSIDIARIES
SIX MONTHS AND THREE MONTHS ENDED MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
SUMMARY OF PERFORMANCE.
The net loss for the six months ended March 31, 1996 was $15.2 million, or $0.35
per share, compared to $8.5 million or $0.23 per share, for the six months ended
March 31, 1995. The net loss for the three months ended March 31, 1996 was $7.8
million, or $0.18 per share, compared to $4.6 million or $0.12 per share for the
three months ended March 31, 1995. The increase in the net loss was attributed
to increased operating expenses and increased equity loss of DMX-E. The
operating expenses primarily increased due to the Company's expansion of its
sales and marketing activity in the commercial arena and the expenses associated
with the increased number of music formats to over 90 and the cost of dual
illumination. The increase in equity loss of DMX-E was attributed to the Company
recording 100% of DMX-E loss for the six and three months ended March 31, 1996
as opposed to 51% of DMX-E loss for the six and three months ended March 31,
1995.
The Company's increase in revenues to $7.6 million for the six months ended
March 31, 1996 from $6.0 million for the six months ended March 31, 1995 and the
increase in revenues to $4.0 million for the three months ended March 31, 1996
from $3.1 million for the three months ended March 31, 1995, was primarily
attributed to the growth in commercial subscribers, since the launch of DMX on
the Ku-Band direct broadcast satellite (DBS) in June 1994, and growth in
residential subscribers resulting from the launch of DMX on PrimeStar.
RESULTS OF OPERATIONS
REVENUES.
- ---------
Revenues increased $1.6 million, or 26% to $7.6 million for the six months ended
March 31, 1996, from $6.0 million for the six months ended March 31, 1995.
Revenues increased $886,000, or 29% to $4.0 million for the three months ended
March 31, 1996, from $3.1 million for the three months ended March 31, 1995. The
increase was primarily attributed to both: i) increased residential subscriber
fees resulting from launches by third party distributors in the first fiscal
quarter of 1996, third party distribution did not exist during the six or three
months ended March 31, 1995; and ii) growth in commercial subscriber fee revenue
as a result of increased sales and marketing activity in the national accounts
and O&O groups. In June, 1994, the Company launched on the Ku-Band satellite
which enabled DMX for Business to gain access to nearly 100% of the business
marketplace. Concurrent with this launch, the Companys commercial division
implemented its national accounts sales program and in May 1995 launched its
first owned and operated sales group (O&O) in the Southern California market.
Residential subscriber fees represented approximately 66.9% and 73.8% of total
subscriber fee revenue for the six months ended March 31, 1996 and 1995,
respectively, and 66.6% and 72.7% of total subscriber fee revenue for the three
months ended March 31, 1996 and 1995, respectively. Commercial subscriber fees
represented approximately 32.4% and 26.1% of total subscriber fee revenue for
the six months ended March 31, 1996 and 1995, respectively, and 32.5% and 27.1%
of total subscriber fee revenue for the three months ended March 31, 1996 and
1995, respectively.
OPERATING EXPENSES.
- -------------------
Total operating expenses increased to $13.5 million for the six months ended
March 31, 1996 from $10.3 million for the six months ended March 31, 1995, and
to $6.9 million for the three months ended March 31, 1996 from $5.3 million for
the three months ended March 31, 1995. The increase of $3.2 million for the six
months ended March 31, 1996 and $1.6 million for the three months ended March
31, 1996 was primarily attributed to the increased sales and marketing activity
and studio and programming expenses. Increased
13
<PAGE>
DMX INC.
AND SUBSIDIARIES
SIX MONTHS AND THREE MONTHS ENDED MARCH 31, 1996
sales and marketing activity resulted from the expansion of the national
accounts sales program and the O&O sales group. Increased studio and programming
expenses resulted from the increased music formats from 69 to over 90 channels,
and increased satellite and uplink costs due to double illumination in December
1995 through February 1996, as the company migrated from the AT&T Telstar 401
Ku-band satellite to the AT&T Telstar 402R Ku-band satellite. The double
illumination terminated on February 28, 1996.
General and Administrative Expenses.
General and administrative expenses increased $473,000 to $2.8 million for the
six months ended March 31, 1996 from $2.3 million for the six months ended March
31, 1995. The net increase was primarily attributed to an increase in personnel
cost of $336,000 which included an increased performance bonus paid to the
Chairman, a transfer of an executive and related salary from sales and marketing
to general and administrative, and increases due to additional staff. The
remaining net increases represented increased accounting and consultant expenses
of $70,000 and general office expense of $24,000 due to the expansion and growth
of the Company; and public relations and printing expenses of $34,000 due to
increased business development activities. These increases in expenses were
offset by a reduction in occupancy expense of $35,000 which resulted from the
negotiation of favorable lease terms.
General and administrative expenses of $1.3 million for the three months ended
March 31, 1996 was comparable to general and administrative expenses of $1.3
million for the three months ended March 31, 1995.
Sales and Marketing Expenses.
Sales and marketing expenses increased to $4.7 million for the six months ended
March 31, 1996 from $2.9 million for the six months ended March 31, 1995. The
increase of $1.8 million primarily represented increased salaries and
commissions of $857,000 from the increased sales and marketing activities of the
Companys commercial division and in the building of the sales and support staff
for the national account sales program and the O&O group.
Other sales and marketing expense increases represented: increased office, rent
and telephone of $216,000, which primarily related to the commercial division
expansion; increased travel and entertainment of $218,000, and conventions and
conferences of $106,000, reflecting growth in the sales force and direct
marketing activities for both the residential and commercial divisions; and
increased expenses of $144,000 for consultants who were involved with the
development of the Company's DMX-Disc sales program and development and launch
of the DMX-Direct sales program in October 1995. In addition, the Company
incurred warranty service costs of $127,000 related to new equipment sold by the
commercial division.
Sales and marketing expenses increased to $2.4 million for the three months
ended March 31, 1996 from $1.5 million for the three months ended March 31,
1995. The $944,000 increase primarily represented the increased salaries and
commissions of $360,000 arising from the increased sales and marketing
activities in the Company's commercial division and in the building of the sales
and support staff for the continued expansion of the national account sales
program and the O&O group.
Other sales and marketing expense increases represented: increased travel and
entertainment of $109,000 and conventions and conferences of $28,000, reflecting
growth in the sales force and direct marketing activities for both the
residential and commercial divisions; increased expenses of $77,000 for
consultants who were involved with the development and launch of the Company's
DMX-Direct sales program in October 1995 and the continued development of the
DMX-Disc sales program; increases in other related expenses totaling $96,000,
representing increased office, rent and telephone expenses; and warranty cost
increases of $112,000 resulting from increased equipment sales.
14
<PAGE>
DMX INC.
AND SUBSIDIARIES
SIX MONTHS AND THREE MONTHS ENDED MARCH 31, 1996
Studio and Programming Expenses.
Studio and programming expenses increased to $4.5 million for the six months
ended March 31, 1996 from $3.8 million for the six months ended March 31, 1995.
The $744,000 net increase was primarily attributed to an increase in music
rights of $334,000 commensurate with the growth in subscribers and fee revenue
and increased uplink and satellite cost of $236,000 representing the cost of
double illumination as the Company migrated from the Telstar AT&T 401 Ku-Band
satellite to the AT&T Telstar 402R Ku-Band satellite. The remainder of the net
increase of $174,000 represented increased salaries, program consultant expenses
and other direct costs related to the Companys increase in music formats from
approximately 69 to over 90 over the last year and DMX-Disc production cost
incurred to establish the new DMX-Disc product line.
Studio and programming expenses increased to $2.4 million for the three months
ended March 31, 1996 from $1.9 million for the three months ended March 31,
1995. The net increase of $496,000 was primarily attributed to an increase in
music rights of $167,000 commensurate with the growth in subscribers and fee
revenue and increased uplink and satellite cost of $279,000 representing double
illumination as the Company migrated from the AT&T Telstar 401 Ku-Band satellite
to the AT&T Telstar 402R Ku-Band satellite. The remainder of the net increase
of $50,000 represented increased programming costs as the Company now maintains
over 90 formats, and DMX-production cost incurred to establish the new DMX-Disc
product line.
Equity in Loss of DMX-E.
The equity in loss of DMX-E increased to $9.5 million for the six months ended
March 31, 1996 from $4.6 million for the six months ended March 31, 1995. The
increase in the equity loss of DMX-E was primarily attributed to the Company
recording 100% of DMX-E loss for the six months ended March 31, 1996 as opposed
to 51% of DMX-E loss for the six months ended March 31, 1995.
During the fiscal year ended September 30, 1995, DMX-E fully utilized all funds
available under the TCI-E credit facility and therefore losses funded by the
Company in excess of its guaranteed portion of the debt were recognized by the
Company. During the six months ended March 31, 1996 the Company funded
operating losses of DMX-E and accordingly 100% of DMX-E loss for the quarter was
recorded by the Company.
The equity in loss of DMX-E increased to $5.0 million for the three months ended
March 31, 1996 from $2.5 million for the three months ended March 31, 1995. The
increase of $2.5 million was primarily attributed to the Company recording 100%
of DMX-E loss for the three months ended March 31, 1996, as opposed to 51% of
DMX-E loss for the second fiscal quarter ended March 31, 1995.
Summary of Performance of DMX-E.
DMX-E's net loss for the six months ended March 31, 1996 was $9.5 million
compared to $8.8 million for the six months ended March 31, 1995. The increase
in the net loss was primarily attributed to increased rental expense associated
with the satellite audio subcarriers on the ASTRA satellite system to provide 62
music channels for the European direct-to-home (DTH) distribution of DMX,
provisions for subscriber and management fees to cover the administrative costs
of processing DTH customers in Europe and increased interest expense on the debt
which financed the development of operations of DMX-E. The net increase in loss
was offset by increased subscriber revenue earned after the European DTH launch
in September 1995, the reduction in transponder rentals resulting from the
transfer of the transatlantic satellite transmissions from Intelsat to TDRSS and
the reduction in research and development and engineering expense as DMX-E
infrastructure was completed. Prior to the launch of the DTH services in
September 1995 on ASTRA in Germany, Austria and Switzerland, which marked the
start of the Pan European DTH launch, DMX-Es resources were primarily used for
technological, legal and administrative expenses to develop the necessary
infrastructure.
15
<PAGE>
DMX INC.
AND SUBSIDIARIES
SIX MONTHS AND THREE MONTHS ENDED MARCH 31, 1996
LIQUIDITY AND CAPITAL RESOURCES.
During the six months ended March 31, 1996, the Company generated funds through
financing activities that included proceeds of $1.0 million from the sale of its
common stock to a director-stockholder and a $2.5 million short term working
capital note from TCI. The net decrease in cash of $8.3 million, net of the
financing activities, for the six months ended March 31, 1996, was attributed to
cash used in investing activities of $7.1 million, relating primarily to the
funding of DMX-E losses, and cash used in operating activities of $4.5 million.
Management believes that the Company will begin to generate cash from its non
European operating activities on a prospective basis and subsequent to March 31,
1996, has reduced operating expenses and capital spending to extend the US
operation's working capital. However, the Company will need additional funding
to continue to expand and develop the Company's business pursuant to
management's current plans and to fund the expected continuing losses of DMX-E.
Management believes that the Company has access to additional debt or equity
financing sufficient to fund current operations. However, there can be no
assurance that such financing will be obtained. In the event such financing is
not obtained, management would continue to reduce operating expenses and capital
spending as necessary and would consider terminating the European operations as
a means to stem cash shortfalls. These operating expenses include both
discretionary spending, such as sales and marketing expenses and overhead costs,
such as general and administrative expenses. Such expenses will continually be
evaluated giving consideration to the cash flow generated from subscriber fee
revenue, anticipated growth in such revenue, and available working capital.
Subsequent to March 31, 1996 and concurrent with the close of the merger
transaction to acquire the remaining 49% interest in DMX-E, the Company
completed a sale of 4.5 million shares of common stock to TCI for $9.0 million
of which $5.0 million will be used to pay outstanding debts and accounts payable
of DMX and DMX-E. The remaining proceeds from the stock sale to TCI will be used
to fund the operations of DMX and DMX-E in the immediate future. During that
time, the Company continues to seek other financing arrangements to fund the
expected continuing losses of DMX-E. However, to the extent that outside
financing is not available, the Company may terminate the European operations.
In such circumstances, claims may be filed under the Companys guarantees of
certain DMX-E obligations. See Note 7 to Consolidated Financial Statement.
To the extent that this Quarterly Report contains forward looking statements
with respect to the financial condition, results of operations or business of
the Company, such statements involve risks and uncertainties including but not
limited to those factors described above and those described in the Company's
Annual Report on Form 10-K (10-K) for the year ended September 30, 1995 and the
Proxy Statement filed with the SEC on January 12, 1996 and February 12, 1996
respectively. The foregoing is not a complete description of the Company's
business or the risks associated with an investment in the Company. A more
complete discussion of these items can be found in the 10-K under the heading
Business, and in the Proxy Statement under the headings The Merger and
Information concerning DMX-E.
RECENT DEVELOPMENTS.
At March 31, 1996 and at September 30, 1995, the Company did not meet certain
requirements for continued listing on The Nasdaq National Market, and will be
delisted unless arrangements to meet those requirements can be completed. The
Company has requested an extension of time to comply with those requirements,
and has also taken steps to qualify for transfer to The Nasdaq SmallCap Market.
16
<PAGE>
PART II-OTHER INFORMATION
-------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
NONE.
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On March 12, 1996, a special meeting of stockholders of DMX Inc. was held.
The matters that were considered and voted upon collectively at the meeting were
(i) the Agreement and Plan of Merger, dated as of August 28, 1995, as amended as
of November 1, 1995 and January 17, 1996, ("the Agreement") among the Company,
TCI-Euromusic, Inc. ("TCI-E") and United Artist Programming International, Inc.
("UAPI"); (ii) the merger of TCI-E with and into the Company upon terms and
subject to the conditions set forth in the Agreement; (iii) the issuance of
shares of the Company's common stock to UAPI pursuant to the terms of the
Agreement; and (iv) the other transactions contemplated by the Agreement.
There were 32,525,085 shares represented by properly executed proxies out
of 43,594,970 shares outstanding and entitled to vote. 30,047,814 shares in
favor, 219,804 shares against and 1,045,804 shares abstained. There were
1,211,663 broker non-votes with respect to this proposal.
ITEM 5. OTHER INFORMATION
- ------- -----------------
ACQUISITION OR DISPOSITION OF ASSETS.
On May 17, 1996, DMX Inc. consummated the merger of TCI-Euromusic, Inc.
("TCI-E") pursuant to the terms of the Agreement and Plan of Merger ("the
Agreement"), dated August 28, 1995, as amended as of November 1, 1995 and
January 17, 1996 between the Company, TCI-E and United Artists Programming
International, Inc. ("UAPI"), which provides, among other things, for the merger
of TCI-E with and into the Company, with the Company as the surviving
corporation (the "Merger"). Pursuant to the terms of the Agreement and the
Merger; (i) DMX-E's indebtedness to TCI-E under the Notes will be canceled and
converted into intercompany notes payable to the Company and (ii) each share of
TCI-E Common Stock, $1.00 par value, issued and outstanding immediately prior to
the effective time of the Merger was converted into approximately 10,841.62
shares of common stock. The Company issued to UAPI, an indirect wholly owned
subsidiary of Tele-Communications International, Inc. ("TCI-I"), which is a
majority owned subsidiary of Tele-Communications, Inc. ("TCI"), owner of all the
outstanding shares of TCI-E.
As a result of the Merger and other transactions described below which
occurred concurrent with the merger close on May 17, 1996, UAPI and TCI and its
affiliates collectively own 45% of the issued and outstanding shares of Common
Stock of the Company as of May 17, 1996.
Concurrent with the close of the Merger on May 17, 1996, the Company issued
4,500,000 shares of common stock to TCI and received $9 million.
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
TCI-E, a special purpose company established to hold the investment in
DMX-E, conducts no business activity and only holds the 49% interest in DMX-E
and notes due from DMX-E and the Company. As
17
<PAGE>
PART II-OTHER INFORMATION
-------------------------
a result of the merger, the Company will own 100% of DMX-E and DMX-E's
financial statements will be consolidated with those of the Company.
The audited consolidated financial statements of DMX-E as of September 30,
1995 and 1994 and for each of the years in the three year period ended September
30, 1995 and the independent auditors' report thereon was included in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
1995 and is incorporated herein by reference.
DMX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet of the Company
includes the unaudited amounts reported by the Company as of March 31, 1996 in
its Form 10-Q herein, the unaudited amounts included in the consolidated
financial statements of DMX-E as of March 31, 1996 and the unaudited amounts of
TCI-E as of March 31, 1996. In addition, the Unaudited Pro Forma Condensed
Consolidated Balance Sheet includes the issuance of 4.5 million shares of common
stock to TCI for $9 million which closed on May 17, 1996.
The Company owned a 51% interest in DMX-E and as a result of the Merger which
closed on May 17, 1996, acquired the remaining 49% interest by merger of TCI-
Euromusic, Inc. with and into the Company. TCI-E, a special purpose company
established to hold UAPI's investment in DMX-E, conducts no business activity
other than holding the 49% interest in DMX-E and Notes due from DMX-E and the
Company. As a result of the Merger, DMX-E's financial statements will be
consolidated with those of the Company. To enhance the clarity of the pro forma
effects of the Merger, the pro forma balance sheet includes adjustments that
reflect the acquisition of TCI-E and the elimination of the intercompany
balances.
The unaudited pro forma condensed consolidated statement of operations for the
six months ended March 31, 1996 includes the unaudited amounts reported by the
Company for the six months ended March 31, 1996, as reported in its Form 10-Q
herein, and includes the unaudited amounts in the consolidated financial
statements of DMX-E and subsidiary and for the six months ended March 31, 1996.
The unaudited pro forma condensed consolidated statement of operations for the
periods noted present the results of operations of the Company assuming the
Merger had been consummated as of the beginning of the period indicated.
The unaudited pro forma condensed consolidated statement of operations for the
year ended September 30, 1995 includes the audited amounts reported by the
Company for the year ended September 30, 1995, as reported in its Form 10-K, and
includes the audited amounts in the consolidated financial statements of DMX-E
and subsidiary and for the year ended September 30, 1995, as reported by the
Company in its Form 10-K for the fiscal year ended September 30, 1995. The
unaudited pro forma condensed consolidated statement of operations for the
periods noted present the results of operations of the Company assuming the
Merger had been consummated as of the beginning of the period indicated.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company and all calculations have been made based upon
assumptions deemed appropriate. Certain of these assumptions are set forth under
the notes to the unaudited pro forma condensed consolidated financial
statements. The unaudited pro forma condensed consolidated financial statements
were prepared utilizing the accounting policies of the Company as outlined in
its historical financial statements and reflect preliminary allocations of the
purchase price which may be subject to further adjustments as the Company
finalizes the allocation of the purchase price in accordance with generally
accepted accounting principles.
The unaudited pro forma financial information does not purport to be indicative
of the results of operations or the financial positions which would have
actually been obtained if the acquisition had been consummated on the date
indicated. In addition, the unaudited pro forma financial information does not
purport to be indicative of results of operations or financial information which
may be achieved in the future.
The unaudited pro forma financial information should be read in conjunction with
the Company's and DMX-E's historical financial statements and notes thereto
reported by the Company in its March 31, 1996 Form 10-Q herein and September 30,
1995 Form 10-K.
18
<PAGE>
DMX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
DMX TCI- DMX- Pro Forma
Inc. Euromusic Inc. Europe N.V. Adjustments Consolidated
------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 272,488 $ - $ 18,212 $ 9,000,000(7) $ 9,290,700
Securities held to maturity - - - - -
Prepaid expenses 582,429 - 830,597 - 1,413,026
Accounts Receivable, net 4,310,052 - 924,587 - 5,234,639
Due from DMX Inc. - 205,571 - (4,481)(1) -
( 201,090)(1) -
Accrued interest due from DMX-Europe - 5,944,813 - (26,910)(1) -
(5,917,903)(3) -
Allowance for accrued interest - (3,774,785) - 3,774,785(1) -
------------- ------------ ------------ ------------ -------------
Total current assets 5,164,969 2,375,599 1,773,396 6,624,401 15,938,365
Investment in Galactic/Tempo 488,170 - - - 488,170
Property and equipment, net 4,349,060 - 1,768,677 - 6,117,737
Other assets 295,492 - 444,841 - 740,333
Note receivable - DMX-E - 24,436,000 - (24,436,000)(3) -
Goodwill - - - 10,854,699(1) 10,854,699
-------------- ------------ ------------ ------------ -------------
Total Assets $ 10,297,691 $ 26,811,599 $ 3,986,914 $ (6,956,900) $ 34,139,304
============= ============ ============ =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,470,445 $ - $ 5,002,915 $ - $ 6,473,360
Accrued liabilities 2,782,455 - 1,785,186 - 4,567,641
Amounts due to Related parties 2,500,000 - 2,596,157 (2,596,157)(3) 2,500,000
Notes payable to related parties 201,090 - - (201,090)(1) -
Current portion of capital lease obligation 349,191 - - - 349,191
------------- ------------ ------------ ------------ -------------
Total current liabilities 7,303,181 - 9,384,258 (2,797,247) 13,890,192
Note payable - TCI-E - - 30,353,903 (30,353,903)(3) -
Royalties payable 1,540,657 - - - 1,540,657
Deferred revenue 318,977 - - - 318,977
Capital lease obligation 1,346,325 - - - 1,346,325
Investment in DMX-Europe 18,814,752 22,172,114 - (7,831,776)(1) -
2,596,157(3) -
(35,751,247)(4) -
STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock 441,806 1,000 245,100 108,416(1) -
(1,000)(2) -
(245,100)(4) -
45,000(7) 595,222
Paid-in capital 100,480,560 24,677,000 - 26,995,644(1) -
(24,677,000)(2) -
8,955,000(7) 136,431,204
Preferred Stock - - 9,490,000 (9,490,000)(4) -
Accumulated deficit (119,413,237) (20,038,515) (45,494,314) 20,038,515(2) -
45,494,314(4) (119,413,237)
Treasury stock (578,003) - - - (578,003)
Translation reserve 42,673 - 7,967 (34,706)(1) -
(7,967)(4) 7,967
------------- ------------ ------------ ------------ -------------
Net stockholders' equity (deficit) (19,026,201) 4,639,485 (35,751,247) 67,181,116 17,043,153
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 10,297,691 $ 26,811,599 $ 3,986,914 $ (6,956,900) $ 34,139,304
============= ============ ============ ============ =============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements
19
<PAGE>
DMX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
DMX- DMX- Pro Forma
Inc. Europe N.V. Adjustments Consolidated
------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Subscriber fee revenues, related party $ 4,353,559 $ - $ - $ 4,353,559
Subscriber fee revenues, other 3,159,978 411,441 - 3,571,419
Other revenue, net 119,226 - - 119,226
------------ ----------- ----------- ------------
7,632,763 411,441 - 8,044,204
OPERATING EXPENSES:
General and administrative 2,779,077 1,415,051 - 4,194,128
Sales and marketing 4,696,127 1,700,315 - 6,396,442
Studio and programming 4,505,277 4,418,707 (137,520)/(3)/ 8,786,464
Research and development 416,912 206,276 - 623,188
Stock bonus and options compensation 274,854 - - 274,854
Depreciation and amortization 805,762 444,700 - 1,250,462
Amortization of goodwill - - 313,614/(5)/ 313,614
------------ ----------- ----------- ------------
13,478,009 8,185,049 176,094 21,839,152
Net operating loss (5,845,246) (7,773,608) (176,094) (13,794,948)
OTHER INCOME (EXPENSE):
Equity earnings in Galactic/TEMPO Sound 31,241 - - 31,241
Equity in loss of DMX-Europe (9,486,767) - 9,486,767/(4)/ -
Interest income 74,633 14,427 - 89,060
Interest expense (100,042) (1,727,584) 1,689,857/(6)/ (137,769)
Other income, net 137,080 - (137,520)/(3)/ (440)
------------ ----------- ----------- ------------
(9,343,855) (1,713,157) 11,039,104 (17,908)
Net loss $(15,189,101) $(9,486,765) $10,863,010 $(13,812,856)
============ =========== =========== ============
Loss per share $ (0.35) $ (0.25)
============ ============
Weighted average number of shares 43,727,048 10,841,624 54,568,672
============ =========== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements
20
<PAGE>
DMX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
DMX DMX- Pro Forma
Inc. Europe N.V. Adjustments Consolidated
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Subscriber fee revenues, related party $ 7,695,978 $ - $ - $ 7,695,978
Subscriber fee revenues, other 4,920,380 151,176 - 5,071,556
Other revenue, net 157,026 - - 157,026
------------ ----------- ------------ ------------
12,773,384 151,176 - 12,924,560
OPERATING EXPENSES:
General and administrative 5,511,615 3,117,943 - 8,629,558
Sales and marketing 7,438,023 3,259,442 - 10,697,465
Studio and programming 7,773,759 8,148,891 (245,130)/(3)/ 15,677,520
International development 168,629 - - 168,629
Research and development 725,164 1,974,508 - 2,699,672
Stock bonus and options compensation 549,708 - - 549,708
Depreciation and amortization 1,341,775 541,678 - 1,883,453
Amortization of goodwill - - 627,228/(5)/ 627,228
------------ ----------- ------------ ------------
23,508,673 17,042,462 382,098 40,933,233
Net operating loss (10,735,289) (16,891,286) (382,098) (28,008,673)
OTHER INCOME (EXPENSE):
Equity earnings in Galactic/TEMPO Sound 306,640 - - 306,640
Equity in loss of DMX-Europe (13,271,599) - 13,271,599/(4)/ -
Interest income 282,234 54,519 - 336,753
Interest expense (208,694) (2,876,252) 2,873,525/(6)/ (211,421)
Other income, net 547,179 - (245,130)/(3)/ 302,049
------------ ----------- ------------ ------------
(12,344,240) (2,821,733) 15,899,994 734,021
Net loss $(23,079,529) $(19,713,019) $ 15,517,896 $(27,274,652)
============ ============ ============ ============
Loss per share $ (0.60) $ (0.55)
============ ============
Weighted average number of shares 38,505,107 10,841,624 49,346,731
============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements
21
<PAGE>
PART II-OTHER INFORMATION
-------------------------
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
NOTE (1) To Record the purchase of net assets of TCI-E by the issuance of
10,841,624 shares of the Company's common stock at $2.50 per share for purchase
price of $27,104,060.
Goodwill is calculated as the purchase price less the fair value or realizable
value of TCI-E net assets acquired as follows:
<TABLE>
<S> <C> <C>
Purchase Price $ 27,104,060
Less Book Value of TCI-E Net Assets Acquired (4,639,485)
------------
Purchase price adjustments:
To adjust the investment in DMX-E for losses to date recorded by TCI-E,
which were also recognized by DMX Inc. based on modified equity
method of accounting $(7,831,776)
To reverse allowance for uncollectable interest recorded by TCI-E at
49% of the interest accrued on the notes receivable (3,774,785)
To establish a foreign currency translation reserve not recorded by TCI-E (34,706)
To adjust the interest receivable from DMX-E recorded by TCI-E to agree
to the amount that will be realized as stated in the accounts of DMX-E 26,910
To adjust note receivable from DMX Inc. recorded by TCI-E to the amount
that will be realized as stated in the accounts of DMX Inc. $ 4,481 (11,609,876)
------------ ------------
Goodwill $ 10,854,699
============
</TABLE>
NOTE (2) Adjustment to eliminate equity of TCI-E.
NOTE (3) Adjustment to eliminate the inter-company amounts.
NOTE (4) Adjustment to consolidate DMX-Europe and TCI-E.
NOTE (5) Adjustment to record amortization of goodwill over a twenty year
period, which resulted from the purchase transaction.
NOTE (6) Adjustment to eliminate interest expense on intercompany debt.
NOTE (7) To record issuance of 4.5 million shares of common stock to TCI at
$2.00 per share for a purchase price of $9,000,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
NONE.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DMX INC.
(Registrant)
By: /s/ JEROLD H. RUBINSTEIN Date: May 20, 1996
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date Title
--------- ---- -----
<S> <C> <C>
/s/ JEROLD H. RUBINSTEIN May 20, 1996 Chairman of the Board and
Chief Executive Officer
/s/ J. WENDY KIM May 20, 1996 Chief Financial Officer and
Corporate Secretary
</TABLE>
23
