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Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ending June 30, 1996 Commission File No. 0-26294
INTEGRATED COMMUNICATION NETWORK, INC.
(exact name of registrant as specified in charter)
Delaware 65-0348857
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
444 Brickell Avenue, Suite 900
Miami, Florida 33131
(Address of principal executive office)
Registrant's telephone number, including area code:
(305) 530-0200
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 NO X *
--- ----
As of August 23, 1996 the Registrant had 2,372,500 shares of Common Stock,
issued and outstanding.
Transitional Small Business Disclosure Format: YES NO X
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================================================================================
*All filings have been timely, except this June 30, 1996 10-QSB
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statement
Attached
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PART I - FINANCIAL STATEMENTS
Item I - Financial Statements
Integrated Communication Network, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 26,635 $ 1,317,609
Accounts receivable, less allowance for doubtful accounts of
approximately $340,313 at June 30, 1996 and $891,500
at December 31, 1995, respectively 725,768 799,039
Inventory 94,355 94,355
Prepaid media costs 193,145 119,807
Income tax receivable 389,264 243,420
Other receivable 37,600 40,600
Prepaid royalties, fees, and expenses 52,238 33,738
------------ ------------
Total current assets 1,519,005 2,648,568
Furniture, fixtures and equipment, net of accumulated depreciation
of $33,430 at June 30, 1996 and $24,130 at December 31, 1995,
respectively 96,267 103,455
Other assets
Deferred production costs, net 211,228 122,854
Deposits 148,536 863,256
Other assets 73,245 -
------------ ------------
Total assets $ 2,048,281 $ 3,738,133
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 259,748 $ 461,821
Accounts payable 975,055 582,698
Accrued expenses 449,078 685,450
Notes payable - service provider 1,324,158 740,844
Notes payable - other 12,222 15,556
------------ ------------
Total current liabilities 3,020,261 2,486,369
Commitments - -
Stockholders' equity
Preferred stock - $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Common stock - $.01 par value, 10,000,000 shares
authorized, 2,355,000 shares and 2,350,000 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 23,550 23,500
Additional paid-in capital 5,601,928 5,596,978
Retained deficit (6,597,458) (4,368,714)
------------ -----------
Total stockholders' equity <Deficit> (971,980) 1,251,764
------------- ------------
Total liabilities and stockholders' equity $ 2,048,281 $ 3,738,133
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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INTEGRATED COMMUNICATION NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue - net $ 1,549,648 $ 4,400,119 $ 4,333,775 $ 10,455,767
Operating costs and expenses
Cost of sales 1,718,153 4,121,669 4,883,212 8,735,943
General and administrative 862,739 864,944 1,800,213 1,852,443
------------ ------------ ------------ ------------
Total operating costs and expenses 2,580,892 4,986,613 6,683,425 10,588,386
------------ ------------ ------------ ------------
Earnings (loss) from operations (1,031,244) (586,494) (2,349,650) (132,619)
------------ ------------ ------------ -----------
Other income (expense)
Interest income 358 - 9,116 -
Interest expense (12,391) (83,587) (33,462) (177,828)
Other income <Expense> 5,234 1,594 (4,748) 6,254
----------- ------------- ------------ ------------
Total other expense (6,799) (81,993) (29,094) (171,574)
----------- ------------ ------------ ------------
Earnings (loss) before provision
for income taxes (1,038,043) (668,487) (2,378,744) (304,193)
Provision (benefit) for income taxes (19,000) (285,691) (150,000) (127,577)
----------- ------------ ------------ ------------
Net earnings (loss) $ (1,019,043) $ (382,796) $ (2,228,744) $ (176,616)
============ ============= ============= =============
Earnings (loss) per share - primary $ (.43) $ (.31) $ (.95) $ (.14)
============= ============= ============= =============
Earnings (loss) per share - fully diluted $ (.43) $ (.31) $ (.95) $ (.14)
============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
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Integrated Communication Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (2,228,744) $ (176,616)
Adjustments to reconciled net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 200,954 363,201
Provision for bad debts (551,187) 139,688
Provision for bad debts of affiliate - (40,400)
Provision for deferred taxes - (54,927)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 624,458 (496,262)
(Increase) in prepaid royalties fees and expenses (18,500) (74,568)
(Increase) in deferred production costs (275,028) (364,786)
(Increase) in prepaid media costs (73,338) (290,075)
(Increase) in income tax receivable (145,844) -
Decrease in other receivable 3,000 -
Decrease (increase) in security deposits 25,000 (5,643)
Decrease in due from affiliate - 148,400
Increase in accounts payable 392,357 165,232
Increase (decrease) in accrued expenses (236,372) 107,647
Increase (decrease) in income taxes payable - (72,650)
------------ -------------
Net cash used in operating activities (2,283,244) (651,759)
Cash used in investing activities:
Purchase of joint venture interest (73,245) -
Purchase of furniture, fixtures and equipment (2,112) (47,246)
------------ -------------
Net cash used in investing activities (75,357) (47,246)
Cash flows from financing activities:
Increase (Reduction) in bank overdrafts (202,073) 5,898
Deferred financing and offering costs - (510,629)
Deposit with lender 689,720 (465,205)
(Repayment) proceeds of loan - service provider - net 583,314 86,481
Repayment of loans - other (3,334) (53,415)
Proceeds from issuance of subordinated debentures - 1,625,000
Proceeds from issuance of common stock - -
Stock subscriptions received - 10,875
------------ -------------
Net cash provided by financing activities 1,067,627 699,005
------------ -------------
Net change in cash (1,290,974) -
Cash - beginning of period 1,317,609 -
------------ -------------
Cash - end of period $ 26,635 $ -
============ =============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 33,462 $ 155,003
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
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INTEGRATED COMMUNICATION NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
Organization
Integrated Communication Network, Inc. (ICNI), a Delaware corporation
incorporated on January 21, 1992 and based in Miami, Florida, is a direct
response marketing company, which was capitalized and commenced operations in
December 1993 and produces infomercial and short form commercials designed to
motivate television viewers to place telephone orders. Business is conducted
through several wholly-owned subsidiaries and one affiliated company.
Integrated Communication Network, Inc. and its Subsidiaries are defined herein
as the "Company."
Principles of Consolidation
The consolidated financial statements include the accounts of
Integrated Communication Network, Inc. and its wholly-owned subsidiaries:
Ormazd, Inc., 900 International Network Direct, Inc., Telemedia, Inc., Bellesse
International, Inc., SynerVision Productions, Inc., ICNI Management Corp., The
Romance Network, Inc., Psychic Value Network, Inc., Universal Psychic Network,
Inc., and Global Music Network, Inc. All significant intercompany transactions
have been eliminated in the consolidated financial statements.
Consolidated Financial Statements
The quarterly consolidated financial statements herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and in accordance with the requirement
of Regulation S-B. Certain information and footnote disclosures which would be
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company's management believes the disclosures are
adequate to make the information not misleading, it is suggested that these
quarterly consolidated financial statements be read in conjunction with the
Company's audited annual consolidated financial statement and footnotes thereto
contained in its December 31, 1995 10KSB.
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2. INCOME TAXES
The Company estimates that its foreign tax losses will be
approximately $375,000 for the year ended December 31, 1996. This loss will be
carried back to an earlier year resulting in a tax benefit of approximately
$150,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended June 30,1996 compared to the Six Months Ended June 30, 1995
Total revenues consist of revenues, net of chargebacks processed and
to be processed by the long distance carrier. Total net revenues for the six
months ended June 30, 1996 decreased by $6,121,992, or approximately 59%, to
$4,333,775 from $10,455,767 for the six months ended June 30, 1995. This
decrease is attributable to discontinuation of business in Puerto Rico in
September 1995, the decreased revenues of the Exitos and the JoJo infomercials,
the lower than expected results of the Stallone show, and increased chargebacks
in the United States. Puerto Rico accounted for approximately $2,500,000 of
net revenues for the 1995 period. The decreased revenue of the Exitos show was
due to predictable declines associated with aging (the show has been aired for
over one year) and the reduction of media buys due to unfavorable rates. The
Company has produced a new version of Exitos entitled "En Pos del Milenio",
which began airing around March 17, 1996. The JoJo infomercial was also aged
(about 10 months) and has been reworked as a new show entitled "On the Verge
of the Millennium" (both French and English versions), which began airing on
April 1, 1996. The Company stopped airing the Stallone show on March 31, 1996
due to its poor performance. For the six months ended June 30, 1996, the
Exitos and "En Pos de Milenio" infomercials generated net revenues of $923,084
(21%), the Jojo infomercials generated net revenues of $2,721,856 (63%), and
the Stallone show generated net revenues of $659,066 (15%). Chargebacks for the
six months ended June 30, 1996 and 1995 amounted to $1,060,010 and $1,802,968,
respectively. The decrease in chargebacks results primarily from the decrease
in revenues and the increase, as a percentage of sales, relates to the Stallone
Show which airs in the United States where chargebacks have historically been
higher than in Canada, the absence of Puerto Rican sales where the chargebacks
for the six months ended June 30, 1995 were a lower percentage and an increase
in the chargebacks in the United States on the Exitos infomercial. To date,
the Company has experienced a significantly lower chargeback rate on Canadian
revenue than on revenues derived from shows airing in the United States.
Cost of sales decreased by $3,852,731 or 44% for the six months ended
on June 30, 1996 to $4,883,212 from $8,735,943 for the six months ended June
30, 1995 and as a percentage of sales increased to 113% for the six months
ended June 30, 1996 from 84% for the six months ended June 30, 1995. The
dollar decrease was primarily due to reduced revenues. The percentage increase
resulted from the decrease in revenues relative to media costs which remained
relatively constant for both the Exitos and JoJo shows. In addition, the
media, telephone transport, and service bureau costs were significantly higher
on the Stallone show as a percentage of sales. These higher than anticipated
costs as a percentage of revenues were the main reason for termination of the
Stallone show.
General and administrative expenses were $1,800,213 and $1,852,443 for
the six months ended June 30, 1996 and 1995, respectively, a decrease of
$52,230 or 3% in the 1996 period. General
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and administrative expenses as a percentage of sales increased to 42% for the
six months ended June 30, 1996 from 18% for the six months ended June 30, 1995.
The increase in general and administrative expenses as a percentage of sales
was due primarily to relatively constant fixed costs spread over lower net
revenue compared to the prior period.
Interest expense was $33,462 and $177,828 for the six months ended
June 30, 1996 and 1995, respectively, reflecting the decrease in outstanding
balances of loans from West Interactive Corporation ("West"), the Company's
service provider, and others and the issuance and repayment of the Debentures
in January 1995 and in June 1995.
The net loss for the six months ended June 30, 1996 was $2,228,744 as
compared to a loss of $176,616 for the six months ended June 30, 1995, an
increase of $2,052,128 or 1162%. Net losses for the six months ended June 30,
1996 were attributable to the poor performance of the Stallone show, lower
sales revenues from the Jojo infomercial prior to the replacement show ("On The
Verge of the Millennium"), the loss of revenue from discontinuing the airing of
the Exitos show in Puerto Rico, and lower sales revenues from the Exitos show
prior to the replacement show ("En Pos del Milenio") together with relatively
constant fixed costs.
Three Months Ended June 30, 1996 compared to the Three Months Ended June 30,
1995
Total revenues consist of revenues, net of chargebacks processed and
to be processed by the long distance carrier. Total net revenues for the three
months ended June 30, 1996 decreased by $2,850,471, or approximately 65%, to
$1,549,648 from $4,400,119 for the three months ended June 30, 1995. This
decrease is attributable to discontinuation of business in Puerto Rico in
September 1995, the decreased revenues of the Exitos and the JoJo infomercials.
Puerto Rico accounted for approximately $1,000,000 of net revenues for the 1995
period. The decreased revenue of the Exitos show was due to predictable
declines associated with maturity, the reduction of media buys due to
unfavorable rates, not being able to average expenses with Puerto Rican
revenue, and increased chargebacks. Revenues decreased for the JoJo infomercial
due to maturity and media was reduced due to unfavorable rates. For the three
months ended June 30, 1996, the Exitos infomercial generated net revenues of
$159,295 (10%), the Jojo infomercial generated net revenues of $1,346,991
(87%), and the Stallone show generated net revenues of $35,887 (02%).
Chargebacks for the three months ended June 30, 1996 and 1995 amounted to
$548,949 and $885,491, respectively. The decrease in chargebacks results
primarily from the decrease in revenues and the increase, as a percentage of
sales, relates to the Stallone Show which airs in the United States where
chargebacks were higher than in Canada, the higher chargeback rate of the
Exitos infomercial in the United States, and the absence of the lower
chargeback rate in Puerto Rico. To date, the Company has experienced a
significantly lower chargeback rate on Canadian revenue than on revenues
derived from shows airing in the United States.
Cost of sales decreased by $2,403,516 or 58% for the three months
ended on June 30, 1996 to $1,718,153 from $4,121,669 for the three months ended
June 30, 1995 and as a percentage of sales
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increased to 111% for the three months ended June 30, 1996 from 94% for the
three months ended June 30, 1995. The dollar decrease was primarily due to
reduced revenues. The percentage increase resulted from the decrease in
revenues relative to media costs which remained relatively constant for both
the En Pos del Milenio and JoJo shows and media costs were higher on one major
Canadian network compared to the prior period.
General and administrative expenses were $862,739 and $864,944 for the
three months ended June 30, 1996 and 1995, respectively, a decrease of $2,205
or 0% in the 1996 period. General and administrative expenses as a percentage
of sales increased to 56% for the three months ended June 30, 1996 from 20% for
the three months ended June 30, 1995. The increase in general and
administrative expenses as a percentage of sales was due primarily to
relatively constant fixed costs spread over lower net revenue compared to the
prior period.
Interest expense was $12,391 and $83,587 for the three months ended
June 30, 1996 and 1995, respectively, reflecting the decrease in outstanding
balances of loans from West Interactive Corporation ("West"), the Company's
service provider, and others and the issuance and repayment of the Debentures
in January 1995 and in June 1995.
The net loss for the three months ended June 30, 1996 was $1,019,043
as compared to a net loss of $382,796 for the three months ended June 30, 1995,
a increase of $636,247 or 166%. Net losses for the three months ended June 30,
1996 were attributable to lower sales revenues from the Jojo infomercial, the
loss of revenue from discontinuing the airing of the Exitos show in Puerto
Rico, lower net sales revenues from the En Pos de Milenio show, relatively
constant fixed costs, and a decreased tax benefit compared to the prior
period.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, net cash used in operating
activities was $2,283,244, which resulted primarily from the net loss of
$2,228,744. Net cash used in operating activities for the six months ended
June 30, 1995 was $651,759, which resulted primarily from an increase in
accounts receivable of $496,262, an increase in prepaid media of $290,075, and
an increase in deferred production costs of $364,786, partially offset by an
increase in the provision for bad debts of $139,688, and depreciation and
amortization of $363,201.
Cash flow used in investing activities, which was the result of
investing in other assets and purchases of furniture, fixtures, and equipment,
was $75,357 for the six months ended June 30, 1996. Cash used in investing
activities during the six months ended June 30, 1995 was $47,246 which was the
results of purchases of furniture, fixtures and equipment.
Cash provided by financing activities for the six months ended June
30, 1996 was $1,067,627. This consisted principally of the decrease in the
deposit with West of $689,720 and proceeds of loan
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from service provider of $583,314. This was partially offset by reductions in
bank overdrafts of $202,073. Cash provided by financing activities for the six
months ended June 30, 1995 was $699,005. This consisted principally of the
proceeds from the issuance of the debentures in the amount of $1,125,000 in a
private placement in January 1995 and $500,000 in debentures in June 1995.
This was partially offset by the increase in the deposit with West of $465,205
and deferred financing and offering costs of $510,269.
The Company's cash balance at June 30, 1996 was $26,635, working
capital was ($1,501,256), and the ratio of current assets to current
liabilities was .50 as compared to $1,317,609, $162,199, and 1.07,
respectively, at December 31, 1995. The ratio of current assets to current
liabilities is an indication of the Company's ability to pay its liabilities
when due. The decrease in each item from December 31, 1995 to June 30, 1996
was substantially due to the losses incurred in the six months ended June 30,
1996.
The Company, through its subsidiaries, maintains one-year agreements
with West for advances against accounts receivable collections, currently
through four separate agreements providing for an aggregate credit amount up to
$7,000,000 ($3,000,000 of which relates to facilities for new programs which
are not currently in use) at an interest rate of prime plus 3%. These
agreements are generally renewed annually upon the same terms, except that the
available credit amount may vary. Advances are made at the discretion of the
service provider and range from 75% to 80% of qualified receivables. Amounts
advanced are due upon demand and are collateralized by the accounts receivable
collections and by a guaranty of the Company's president who is also the
Company's principal stockholder. As of December 31, 1995 and June 30, 1996 the
Company's account receivable due from West was $799,039 and $725,768,
respectively. Total amount of advances payable to West as of December 31, 1995
and June 30, 1996 totaled $740,844 and $1,324,158, respectively. West also
withholds deposits determined at its discretion, which at December 31, 1995 and
June 30, 1996 were in amounts of $863,256 and $148,536, respectively. It is
anticipated that the Company, for cash flow purposes, will seek to continue
this accounts receivable financing for existing and new programs which feature
pay-per- call services, because collections may take up to 60 days from the
date that the revenues are generated. To date, the Company has experienced
collection of revenues from West within 60 days, subject to withholding for
chargebacks. Chargebacks may vary by program, based principally on the nature
of the service offered, the target audience, and the market in which they are
aired. Chargebacks may occur well beyond the 60-day settlement cycle for 900
number receivables and West typically withholds some of the settled receivable
for chargebacks beyond such 60-day period.
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Management of the Company anticipates that existing capital, accounts
receivable financing, and anticipated cash flow from operations will be
insufficient to fund the ongoing production of infomercials, as well as the
planned expansion of the Company. Such insufficiency is due to extraordinary
chargebacks in Puerto Rico, the loss of revenue from Puerto Rico, and the less
than anticipated revenues generated from the Stallone Show. However, the
Company has taken steps to reduce overhead and to find joint venture partners
and equity and/or debt investors to continue to fund production of new
infomercials. Since December 31, 1995, it has cut back general spending,
including travel, has deferred payment of part of the scheduled January 1, 1996
rent increase under its Florida office lease and renegotiated its lease for
less space. In addition, the Company has also terminated its lease in
California as of March 31, 1996, reduced staff by six employees in April 1996
and temporarily reduced its remaining staff to half pay. All remaining
employees are currently at full pay. The Company will continue to look for
ways to reduce or eliminate overhead. The Company has obtained a $500,000 loan
and an additional $100,000 loan from West, its service bureau, collateralized
respectively by its 1995 Federal Tax refund and by its inventory. The loans
are comprised of two $250,000 demand notes and a $100,000 demand note, of which
$600,000 has been advanced. $250,000 has been repaid from the proceeds of the
tax return exhausting this source of security. The notes bear interest at
prime plus 3%. The Company currently has no firm commitments whereby it may
obtain any additional external funding. However, the Company is currently in
negotiations to obtain additional external funding, which will include
marketing funds for the joint venture in Mexico.
If the Company is unable to continue to generate significant revenues
from its two new infomercials and is unable to otherwise obtain additional
external funding, the Company anticipates that cash on hand plus revenues from
its current infomercials will be sufficient to sustain operations at its
reduced overhead levels until September 30, 1996. New program development
would require additional capital. The Company has no significant commitments
for capital expenditures or other major expense items, except for the Company's
anticipated joint venture in Mexico.
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TRENDS
During fiscal year 1995, revenues were generated from the Exitos shows
during the eight-month period in which the shows were aired in Puerto Rico,
while no revenues from Puerto Rico will be generated in fiscal year 1996.
Therefore, it is possible that if the new programs are not successful, revenues
for the fiscal year 1996 will be lower than fiscal year 1995. Moreover, there
can be no assurance that profit margins will not decrease as such new programs
are added. New programs may also involve the sale of products, which
management anticipates will mean higher cost and inventory carrying costs.
The combination of the loss for the fiscal year ended December 31,
1995 with the loss for the six months ended June 30, 1996 has caused the
Company's auditors to express doubt as to the Company's ability to continue as
a going concern. The Company has addressed this situation with severe
reductions in overhead described above, continuing efforts to reduce or
eliminate certain overhead expenses, and efforts to obtain external equity debt
or joint venture funding. Furthermore, with the new Spanish infomercial, "En
Pos del Milenio" and the new JoJo infomercial "On the Verge of the Millennium",
and if the Company succeeds in obtaining external financing for its new
projects, the Company feels it can still recover in the fiscal year 1996.
General and administrative expenses will increase if additional
personnel needs to be hired to implement new programs.
FORWARD LOOKING STATEMENTS
Except for the historical information set forth in this management
discussion, the matters discussed herein are forward looking statements based
on current expectations. Actual results may differ materially based on the
relative success or failure of current programs, the outcome of pending
litigation described in Item 1 of Part II of this Form 10QSB and the Company's
success or failure in obtaining external funding.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 28, 1995, suit was filed in Baltimore County Circuit Court.
The Plaintiffs are Jacqueline Stallone and Universal Psychic Network, Inc.
("UPNI"), a subsidiary of Integrated Communication Network, Inc. The
defendants are JTK Technologies, Inc., L.J. Marketing, Inc., Jeffrey Augen and
Joel Katz. UPNI has an exclusive contract with Jacqueline Stallone for
advertising, publishing, and promotion purposes with respect to providing
astrological services to the public on 800 and 900 telephone lines. UPNI
became aware of JTK Technologies wrongfully using the name, image, and likeness
of Jacqueline Stallone by advertising a Jacqueline Stallone Club and using 800
and 900 telephone lines. L.J. Marketing is a sister company of JTK
Technologies and participated in the wrongful use of Jacqueline Stallone's
name, image, and likeness. Augen and Katz are officers, directors, and owners
of JTK Technologies, Inc. and L.J. Marketing, Inc. and participated in the
misappropriation. The suit is for an injunction restraining any further use of
Jacqueline Stallone's name, likeness, or image, for damages, misappropriation
of name, likeness and image and unfair competition. Defendants agreed to an
injunction and an order granting the injunction was entered on/or about October
12, 1995 and remains in effect. The court has ordered claims for damages to be
arbitrated and UPNI has appealed the ruling.
Yves-Alain Duranleau and Richard Bernier sued Empowergenics, Inc.,
Ormazd, Inc., Integrated Communication Network, Inc., David Greenberg and Bell
Canada. The action was instituted in the Superior Court for the Province of
Quebec, District of Montreal, Canada, in the Case No. 96-04-18 (16:51). The
case was filed April 16, 1996. The underlying facts are that Empowergenics,
Inc., a Delaware corporation, a one hundred percent owned subsidiary of
Integrated Communication Network, Inc. entered into two agreements with
Yves-Alain Duranleau, one, an Infomercial Agreement and the other a Publishing
Agreement, both dated October 18, 1995. Under the Infomercial Agreement,
Empowergenics intended to develop and produce a marketing campaign to promote
the sale of a book entitled "La vie le Rappelle a la Vie", one or more audio
tapes featuring Mr. Duranleau and other products to be developed in the future
including video tapes featuring Mr. Duranleau, seminars hosted by Mr. Duranleau
and possibly other products. The Publishing Agreement gave Empowergenics the
right to the book, "La vie le Rappelle a la Vie." The Infomercial Agreement
contained a "Pay or Play" provision which required the Company only to pay Mr.
Duranleau the amounts set forth in the Agreements if it did not wish to use Mr.
Duranleau's service or develop the project. Mr. Bernier, under the Agreement,
was entitled to 30% of the sums to be paid to Mr. Duranleau, but the Company
had no obligation to pay Mr. Bernier directly. The lawsuit alleges that
Empowergenics breached the contract with Mr. Duranleau by not going forward
with the project thereby causing Mr. Duranleau and Mr. Bernier to suffer
CN$413,000 worth of damages of various sorts. ICNI and David Greenberg are
included in the lawsuit because the plaintiffs alleged that they were induced
to enter into the Agreements by representations of Mr. Greenberg that they
would be joining the ICNI Group of which Ormazd, Inc., a wholly owned
subsidiary of ICNI, is a part. Ormazd, Inc. was included in the lawsuit
because the plaintiffs alleged that Ormazd, Inc, is directed by
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ICNI and was held up as a successful project of the ICNI Group, thereby
inducing the plaintiffs to enter into the Agreements. The relief that has been
sought was, first, an immediate pre-judgment seizure of funds belonging to any
of the defendants in the possession of Bell Canada in order to secure payment
of any judgment entered against the defendants, and second, damages in the
amouns of CN$289,100 for Yves-Alain Duranleau and CN$123,900 for Richard
Bernier. The Company is vigorously defending this lawsuit and believes that
this claim is without merit and will not have material impact on the Company.
On July 18, 1996 a complaint was filed in the Circuit Court of Dade County,
Florida. The Plaintiff, Univision Television Group claims the Company owes
them $22,312.50 for performed work, labor and/or service for and on behalf of
the Company. The amount of damage sought is $22,312.50 together with interest
for 30 days from the date of the respective invoices and cost of the action.
The Company is vigorously defending the lawsuit and believes that this claim is
without merit and would not have a material impact on the Company.
On July 26, 1996 the Company was served with a shareholder class action lawsuit
filed in the United States District Court for the Southern District of Florida.
The lawsuit, which names the Company and its officers and directors, alleges
violation of the federal securities law in connection with omitting material
facts and disclosures in the registration statement and prospectus for its
initial public offering in June 1995. The complaint does not specify the
amount of damages sought. The Company believes that the allegations of the
complaint are without merit and the Company intends to defend vigorously.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.23 West Demand Note
11. Statement re: computation of per share
earnings
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
Report on Form 8-K was filed on July 9, 1996 with respect to
the NASDAQ delisting.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this amendment to report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 23, 1996
INTEGRATED COMMUNICATION NETWORK, INC.
By /s/Donald F. Mann
---------------------------
Donald F. Mann
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 10.23
WEST INTERACTIVE CORPORATION
DEMAND NOTE
18
<PAGE> 2
[WEST INTERACTIVE CORPORATION LETTERHEAD]
DEMAND NOTE
$100,000.00 Omaha, Nebraska
August 12, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of West
Interactive Corporation on demand the sum of One Hundred Thousand Dollars and
No/100 Cents ($100,000.00) with prime rate plus three percent interest from the
date hereof.
To secure payment of this Note, Integrated Communication Network, Inc.
hereby grants to West Interactive Corporation a security interest in Compact
Discs and Cassettes as identified on Exhibit A ("Exhibit A"), attached, and any
and all inventory now owned or hereafter acquired. The security interest
granted herein is given in addition to, and not in limitation or modification
of, any other security interest now or hereafter given by Integrated
Communication Network, Inc. or any other party in connection with the
indebtedness evidenced hereby or any other indebtedness of Integrated
Communication Network, Inc. to West Interactive Corporation.
The undersigned waives presentment, demand notice of dishonor, protest,
and all other notices whatsoever, and agrees that the holder hereof may, from
time to time, extend or renew this Note for any period and grant any releases,
compromises, or indulgences with respect to this Note or any extension or
renewal thereof, or any security therefore, or to any party liable thereunder or
hereunder, all without notice to or consent of the undersigned, and without
affecting the liability of the undersigned hereunder.
The undersigned reserves the right to prepay both principal and interest
without penalty.
Integrated Communication Network, Inc.
By: /s/ David Greenberg
--------------------------------------
David Greenberg, CEO
Witness: /s/ Date: 8/13/96
--------------------------------- --------------------------------
Address 444 Brickell Ave. Miami, Fl 33131
----------------------------------------------------------------------
<PAGE> 1
EXHIBIT 11
INTEGRATED COMMUNICATION NETWORK, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ----------------------------
1996 1995 1996 1995
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Computation for Statement of Operations
- ---------------------------------------
Primary earnings (loss) per share:
Net earnings (loss) $ (1,019,043) $ (382,796) $(2,228,744) $ (176,016)
============= ============ =========== ===========
Shares
Weighted average number of common
shares outstanding 2,355,000 1,300,000 2,355,000 1,300,000
Less: Contingent shares not considered
outstanding because conditions for their
issuance have not been met* - (330,000) - (330,000)
Add: Dilutive effect of options and war-
rants (as determined by the application
of the treasury stock method) - 255,000 - 255,000
------------- ------------ ----------- -----------
Weighted average common and common
equivalent shares 2,355,000 1,225,000 2,355,000 1,225,000
============= ============ =========== ===========
Earnings (loss) per common and common
equivalent share $ (.43) $ (.31) $ (.95) $ (.14)
============= ============ =========== ===========
Fully diluted earnings (loss) per share:
Net earnings (loss) as per primary
calculation above $ (1,019,043) $ (382,796) $(2,228,744) $ (176,616)
============= ============ =========== ===========
Weighted average number of shares
outstanding per primary computation
above 2,355,000 1,225,000 2,355,000 1,225,000
Additional dilutive effect of contingent
shares** - - - -
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding, as adjusted 2,355,000 1,225,000 2,355,000 1,225,000
============ ============ ============ ============
Fully diluted (loss) earnings per share** $ (.43) $ (.31) $ (.95) $ (.14)
============ ============ ============ ============
</TABLE>
* In accordance APB15 Interpretations #88 and #91 the conditions necessary
for the release of the performance shares have not been met and therefore
these shares are excluded from the computation of primary earnings per
share. The performance shares were retired effective December 31, 1995.
** Under Interpretations #88 and #91, the calculation of fully diluted
Earnings Per Share assumes the attainment of the required earnings level
and this calculation is dilutive for the three months ended June 30,
1995.
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 26,635
<SECURITIES> 0
<RECEIVABLES> 725,768
<ALLOWANCES> 0
<INVENTORY> 94,355
<CURRENT-ASSETS> 1,519,005
<PP&E> 129,697
<DEPRECIATION> 33,430
<TOTAL-ASSETS> 2,048,281
<CURRENT-LIABILITIES> 3,020,261
<BONDS> 0
0
0
<COMMON> 23,550
<OTHER-SE> (995,530)
<TOTAL-LIABILITY-AND-EQUITY> 2,048,281
<SALES> 4,333,775
<TOTAL-REVENUES> 4,333,775
<CGS> 4,883,212
<TOTAL-COSTS> 6,683,425
<OTHER-EXPENSES> 4,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,462
<INCOME-PRETAX> (2,378,744)
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> (2,228,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,228,744)
<EPS-PRIMARY> (.95)
<EPS-DILUTED> (.95)
</TABLE>
