POST-EFFECTIVE AMENDMENT NO. 3 TO
                                   FORM 10-SB

                        GENERAL FORM FOR REGISTRATION OF
                      SECURITIES OF SMALL BUSINESS ISSUERS
  Under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   EDnet, INC.
                 (Name of Small Business Issuer in its charter)


         Colorado                                        84-1273795
-----------------------------------                -----------------------------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)


One Union Street, San Francisco, California                           94111
--------------------------------------------                        -----------
(Address of principal executive offices)                            (Zip Code)


                    Issuer's telephone number: (415) 274-8800


Securities to be registered under Section 12(b) of the Act:

    Title of each class                       Name of each exchange on which
    to be registered:                         each class is to be registered:

         NONE                                        NOT APPLICABLE

Securities to be registered under Section 12(g) of the Act:

                    Common Stock ($.001 par value per share)
                  ---------------------------------------------
                                (Title of Class)


<PAGE>

This Form 10-SB  includes  forward-looking  statements  that  involve  risks and
uncertainties. Actual results may differ materially from management expectations
as discussed  here.  Factors that could cause or contribute to such  differences
include,  but  are  not  limited  to,  the  following:   risks  associated  with
fundraising and the Company's  ability to secure  resources  necessary to remain
viable  as a  going  concern;  business  conditions  in the  telecommunications,
entertainment and advertising industries,  and the general economy;  competitive
factors such as rival networking technology,  competing products and competitive
pricing;  risks associated with the development,  introduction and acceptance of
new products;  the Company's  ability to manage its rapid growth and attract and
retain key employees; and other risk factors. See "Part I - Item 6.
Description of Business - Plan of Operation" below).

                                     PART I

ALTERNATIVE 2


ITEM 6 (OF MODEL B OF FORM 1-A).  DESCRIPTION OF BUSINESS

Summary of Business

         EDnet,  Inc.,  a Colorado  corporation  (the  "Company"),  develops and
markets  integrated  systems  for  the  delivery,   storage  and  management  of
professional-quality   digital  communications  for  media-based   applications,
including audio and video production for the U.S.  advertising and entertainment
industry.  The Company  has  established  a private  wide-area  network  through
strategic alliances with long distance carriers,  regional telephone  companies,
satellite  operators and independent fiber optic  telecommunications  providers,
which  enables  the  exchange  of  high  quality  audio,  compressed  video  and
multimedia  data  communications.  The Company  provides  engineering  services,
application-specific  technical advice, audio, video and networking hardware and
software as part of its business.  Additionally,  the Company provides  Internet
web site  development,  hosting services and proprietary  software to businesses
conducting Internet commerce.

Industry Overview

         The digital  communications  industry originated in the 1970's based on
the  ability of digital  technology  to support new and  advanced  communication
capabilities.  Digital data can be compressed,  enabling data-dense applications
such as the  instantaneous  exchange of large  amounts of data and  high-quality
concurrent (or "real-time")  interactive  communication  over any distance.  The
Company's primary expertise is in systems  integration using digital  networking
technology.

Business of the Company

         Principal  Markets.  The Company sells its services to the  advertising
and entertainment industry,  including production and post-production companies,
advertisers, producers, directors

                                       2.

<PAGE>


and actors. The Company's networking technology makes it possible for producers,
directors and actors to interact in real time,  with less  interruption of their
schedules,  despite  being  in  separate  locations.  The  Company's  management
("Management")  believes that this is of growing importance in the entertainment
industry  because  while the  production  of audio and  video  entertainment  is
inherently a creative  process  requiring  the  collaboration  of many  parties,
increasingly,  the  participants  in this  process  are in  separate  locations.
Traditionally,  this fact has  accounted  for frequent  travel and delay being a
necessary  element  of the audio and video  production  process.  The  Company's
technology is designed to address this  situation by allowing the  collaborative
process to go forward despite physical separation.

         The Company has established a "network" of recording  studios;  to join
this network a studio  generally  enters into an  agreement  with the Company to
become  part  of the  network  for a term  of  three  years.  Being  part of the
Company's  network allows a studio (which the Company refers to as an "affiliate
studio")  to  establish  a link with,  and  therefore  transmit  audio and video
information  to,  any other  affiliate  studio.  An  affiliate  studio  may also
participate  in joint  promotional  and  advertising  activities  describing the
Company's network of affiliate studios,  has access to certain technical support
described below and a software directory of affiliate studios. Affiliate Studios
also are  charged  lower  "link-up"  rates than those  charged to  non-affiliate
studios to  connect  to studios  with  incompatible  equipment.  Currently,  the
network  is  composed  of over 360  studios  across  North  America,  with major
concentrations in California, Seattle, St. Louis, Chicago, Minneapolis,  Atlanta
and on the East Coast from Washington,  D.C. to New York and Boston. By granting
access to its network,  the Company earns  one-time fees from  customers for the
sale and  installation  of its  equipment  and  ongoing  fees for the use of the
network.

         Audio and Video Network  System  Development  Process.  The Company has
standardized its process for developing  audio and video network  communications
systems for its  customers.  At the time that the Company  contracts  with a new
audio or video network  customer,  the Company's  personnel obtain and determine
technical  information  and  specifications  regarding the  customer's  existing
facility,   equipment   and   communications   requirements.   Based   on  those
specifications,  the Company  determines  the  configuration  of the new system,
selects the appropriate equipment components,  makes necessary  modifications to
the software and/or hardware and performs final quality control procedures.  The
Company then packages and ships the system to the customer.  Installation of the
system can  usually be  performed  by  affiliated  technicians  with  telephonic
support from Company  engineers.  Upon installation of the system, the Company's
technical  personnel  typically  perform a routine  series of system  checks and
diagnostics from its headquarters  facilities via the remote network  connection
to ensure that the newly-installed equipment functions properly.

         Technical  Support.  As part of a customer's monthly network connection
fee, the Company  maintains a staff of technical support personnel to respond to
customer   inquiries  during  business  hours.  For  emergency   support  during
non-business  hours,  domestic customers can contact Company personnel through a
toll-free 800 number, while a special direct-dial  telephone number is available
for international customers. The Company generally can resolve the vast majority
of technical  support  issues  directly  through its network  connection,  which
enables

                                       3.

<PAGE>


Company  personnel  to  perform  remote  diagnostics  directly  on a  customer's
equipment.  In the event that the  Company is unable to  diagnose  and service a
hardware or software problem via the remote network  connection,  a customer can
ship equipment to the Company for on-site, or "bench," diagnostics and service.

         Key  Suppliers  and  Alliances.  The  Company  functions  as a  systems
integrator by acquiring other companies' technologies and combining them into an
effective  communications  solution. The Company does not manufacture any of the
components  used in its network,  but rather  purchases  digital  communications
equipment  components directly from their  manufacturers,  including Dolby Labs,
Telos and APT,  Inc.  The Company  performs  installation  services  and further
equipment  integration.  Because the individual components used in the Company's
systems  are  available  from more  than one  reliable  source or  manufacturer,
Management believes the risk of an adverse impact to the Company's business from
an interruption in supply from any single supplier is minimal.  The Company also
maintains  an  ongoing  inventory  of  all  of the  components  of  its  various
communications  products.  Most of the Company's  suppliers  have offices and/or
distribution points near the Company's San Francisco headquarters.  In the event
that the Company does not have sufficient  inventory  onhand to fulfill a system
hardware order, the Company can usually order and receive  additional  inventory
with  turnaround  times of as little as twenty-four  hours and generally no more
than four weeks.

         Marketing.  The Company  markets its services  through a combination of
employing a direct sales staff of four  full-time  employees and by appearing at
industry trade shows.

Description of Current and Developing Products

         Audio Media Networking Services. The Company develops integrated system
solutions (its "Audio Media  Communications  Service") which provide compression
and  transmission  of studio quality audio signals over fiber optic lines (i.e.,
telephone digital data lines) between separate studios.  The audio data can also
be  accompanied  by time codes so that  operators at the  different  studios can
synchronize  the audio to film  projectors or VCR machines in order to allow the
"real time"  editing of movies and video.  Upon  installation  of an audio media
communications  system and the requisite  sound  equipment,  a studio becomes an
affiliate  studio,"equipped  with  a  device  to  compress,  send,  receive  and
decompress  analog  audio media (known as a "codec").  In  addition,  the studio
becomes a part of the Company's  network of media production and post production
studios.  Outside customers  (non-affiliates) seeking to access media production
facilities  or otherwise  review or edit an audio clip with the  assistance of a
person in a different  location can do so through these  affiliate  studios.  By
using the  Company's  Electronic  Directory  Software,  someone in an  affiliate
studio can determine whether that studio, or another affiliate studio,  operates
equipment  that  is  compatible  with  the  needs  of  the  customer.  Once  the
appropriate affiliate studio is chosen, the customer can schedule an appointment
to use the network.  If nearby  studios do not have  compatible  equipment,  the
Company's  personnel  in  San  Francisco  can  digitally  "bridge"  the  studios
together.  The  customer  then pays a network  access  fee to the  Company.  The
purchase price of these audio media communications systems ranges from $5,250 to
$18,000. The Company pays local telephone

                                       4.

<PAGE>


service providers  telephone  connection  installation  charges  (depending upon
bandwidth  requirements,  from $250 to $1,000) and monthly recurring  connection
charges (from $50 to $1,200),  most of which is reimbursed to the Company by its
customers.  The primary  market for the Audio Media  Communications  Service are
radio  and  television  advertisers,   motion  picture  and  television  program
production companies and music recording companies.

         The Company recently announced a network  application which is designed
especially for the music  recording  industry.  The Company's  "ZeroC" (for zero
compression)   technology  provides   fiber-optic   transmission  of  real-time,
uncompressed  digital audio,  using the true CD standard of 44.1 Khz sampling at
16 bits. The system relays,  in real playback time, the audio bits of an AES/EBU
digital audio datastream with no re-sampling or rate adaption.

         Video Media Networking Services.  The Company is currently developing a
video  communications  service (its "Fast  Forward  Delivery  System")  which is
similar to its Audio Media  Communications  Service.  Through the use of similar
equipment located at affiliate studios,  the Company manages the transmission of
approval-quality  video  segments  between  studios.  The Fast Forward  Delivery
System  transmits  information  on a 128 kilobit  ("ISDN") data line,  which has
dial-up  capability,  and  operates  on the same  principle  as the Audio  Media
Communications  Service  except that the  transmission  does not happen in "real
time." However, using this technology, video media producers and their customers
can efficiently and effectively transmit edits,  approvals,  or modifications to
video and other  types of media,  including  special  effects  media and graphic
media (including prints and logos). Management believes its system is similar to
e.mail for video and,  compared to conventional  methods of transmitting  video,
i.e.,  mail or  physical  travel,  can  significantly  increase  the  speed  and
efficiency of the video editing process, and anticipates spending  approximately
$200,000 in the current year in developing the Fast Forward  Delivery System and
installing the necessary equipment in affiliate studios.

         As with the Company's  Audio  Networking  Services,  outside  customers
(non-affiliates)  seeking to access  media  production  facilities  or otherwise
review or edit video with the assistance of a person in a different location can
do so by  paying a fee to use an  affiliate  studio.  The  customer  also pays a
network  access  fee to the  Company.  The  purchase  price of the Fast  Forward
Delivery System ranges from $15,000 to $50,000. The Company pays local telephone
service providers  telephone  connection  installation  charges  (depending upon
bandwidth  requirements,  from $250 to $1,000) and monthly recurring  connection
charges (from $50 to $1,200),  most of which is reimbursed to the Company by its
customers.  The  primary  market  for  the  Fast  Forward  Delivery  System  are
television   advertisers,   motion  picture  and  television  series  production
companies and other corporate video users.

         Currently,  six Fast  Forward  Delivery  Systems  are in use by several
television series projects in Australia, Canada and Hollywood, California.

         Internet WebSite Development and Hosting Services.  The Company is also
in the Internet  services  marketplace.  In June 1996,  in order to increase its
potential to deliver  high-quality audio and other media over the Internet,  the
Company consummated a transaction whereby Internet Worldwide Business Solutions,
a California corporation, dba Internet Business

                                       5.

<PAGE>


Solutions ("IBS"), an Internet services provider specializing in the development
and hosting of web sites for companies  doing  business on the Internet,  merged
with and into a subsidiary of the Company. The Company thus improved its ability
to integrate numerous  technologies to yield cost-effective media communications
solutions. IBS provides interactive web site development services,  specializing
in complex database access and professional graphic appearance for its corporate
customers.  Web site development  services are sought by businesses that wish to
pursue on-line commerce on the Internet.  Management believes that a key feature
of  the  Company's  web  site  service  is  the  Company's  ability  to  provide
interactive,  graphically  appealing  web  pages,  while  many of the web  sites
developed  by  competitors  are  static  and  plain.  In  addition  to web  site
development,  the  Company  offers  the  following  Internet  related  services:
catalog-based search engines for custom or existing databases;  electronic forms
for  customer  and  query  information  capture;  specialized  on-line  ordering
systems;  and  comprehensive  Internet  networking,  integration and consulting.
Internet  services  for web  site  development  range  from  $5,000  to  $75,000
depending  on the content  and  complexity  of the web site.  Web site host fees
collected  by the Company this year average  approximately  $249 per month.  The
primary market for these services are large and small corporate businesses.

Description of Possible Products

         The Company is also exploring the  development  of additional  products
which are not yet in the  production  phase to enable the Company to participate
in the Internet services marketplace,  which products could provide enhancements
to the Company's Audio Media  Communications  Service and Fast Forward  Delivery
System.  Management  believes  that  there is a market for the  products  listed
below,  but there is no  assurance  that the Company will be able to raise funds
sufficient to develop these  products,  that such products will be  successfully
developed  and  produced,  or if  developed  and  produced,  that  they  will be
profitable for the Company.

         Media Asset Management Systems. The Company anticipates providing a new
service (its "Media Asset Management  System") for the collection,  indexing and
storage of media assets for corporate customers. Media assets include any audio,
video,  special  effects  or print  media that have been  developed  by, and are
considered the property of, the developing  company.  Examples include radio and
TV commercials and product or background still photography.  Management believes
that the Media Asset  Management  System would enable  customers to access their
media  assets by fiber  optic  lines,  which  would  allow them to easily  save,
archive  and   retrieve   previously   produced   media  assets  for  reuse  (or
"re-purposing")  at a later time for a different  application.  For example,  an
advertising  agency may be able to retrieve a previously  used photograph of the
Golden Gate Bridge or a product  package and make minor changes to the image for
use in a new advertisement,  saving both time and money. The Company anticipates
that the pricing for this service would include one-time and ongoing charges and
be based on the specific operational needs of each customer.  The primary market
for the  Media  Asset  Management  System  could be  corporate  advertisers  and
advertising agencies.  The details of the Media Asset Management System have not
yet been  finalized,  nor have  marketing  plans for the Media Asset  Management
System been developed.

                                       6.

<PAGE>


         Internet  WebSite  Development  and  Hosting  Services.  The Company is
exploring  the expansion of its  host/server  site service for  maintaining  its
customers'  web sites to develop an "Intranet" or closed access  network for the
entertainment  industry  while  using the  Internet  as the main  "backbone"  or
communications path.

Competition

         Audio  and  Video  Networking.  Competition  in  the  audio  and  video
networking business is based on the ability to provide systems compatibility and
proprietary   off-the-shelf  codecs.  Due  to  the  difficulty  and  expense  of
developing and maintaining  private digital networks,  Management  believes that
the number of competitors is, and will remain, small.

         The  Company's  principal  competitor  in audio  networking  is the 3D2
("3D2") division of Keystone Communications,  Inc. Until March 31, 1995, 3D2 was
the exclusive North American  distributor of apt-X codecs  manufactured by Audio
Processing  Technology  ("APT"),  which  were in demand in the radio  voice-over
market.  In April 1995,  the Company  became one of APT's few  distributors  and
through aggressive  marketing,  within six months became APT's largest worldwide
distributor.  Management  believes that the Company was able to use its position
as a  distributor  of apt-X  codecs to attract  studios to its  network  because
studios  grew  increasingly  confident  in the  Company's  ability  as a network
service  provider as a result of its  position as an apt-X  codecs  distributor.
Management  estimates  that,  between  July 1995 and June  1996,  as a result of
distributing apt-X codecs, approximately 120 studios joined the network.

         The Company's primary video networking competitors are VYVX, a division
of Williams Co., and Sprint through its DRUMS  products.  These  companies offer
their video networking  services utilizing  higher-bandwidth  fiber connections,
which,  because they do not have dial-up capability,  require scheduling and are
considerably  more  expensive.  Because  the Fast  Forward  Delivery  System  is
primarily ISDN-based, and has dial-up capability, it is generally less expensive
than sending video materials between studios by courier.

Patents & Trademarks

         The  Company  does  not  own  any  patents  and  relies  instead  on  a
combination  of statutory and common law  copyright,  trademark and trade secret
laws to protect  its rights in its  proprietary  technologies.  The  Company has
registered  "EDnet" and  "Entertainment  Digital Network" as trademarks with the
U.S.  Patent and  Trademark  Office and has  applied  to  register  "ZeroC" as a
trademark with the U.S. Patent and Trademark Office.

Research and Development.

         During  the  last  two  fiscal  years,  the  Company  spent a total  of
approximately  $42,000 on research and development.  During each of the last two
fiscal years, the Company did not spend any funds on material customer-sponsored
research and development.  During the current fiscal year,  assuming the Company
is able to raise  sufficient  capital,  Management  anticipates that the Company
will spend a total of approximately $900,000 on research and development.

                                       7.

<PAGE>


Governmental Approvals and Regulation

         The  Company's   networking  services  are  currently  not  subject  to
regulation by any government agency or regulatory body.

History and Organization

         Background.  Prior to founding  the  Company,  most of  Management  was
employed by  Skywalker  Sound  ("Skywalker"),  the post  production  division of
LucasArts/Lucasfilm Ltd. ("LucasArts"). In 1991, while at Skywalker, they made a
breakthrough in the application of digital communications technology.  They were
able to send four  channels of  compressed,  professional-quality  digital audio
over T-1 fiber-optic  telephone lines (individual DSOs or channels over a single
line) from a Skywalker  studio in Northern  California to a Skywalker  studio in
Southern  California.  The  group  thereafter  sent the  audio mix for the movie
Backdraft, then under production,  between the two studios on a daily basis. The
result  was that  Backdraft  was the first film in which the  director  reviewed
movie audio from a remote studio on the same day it was produced.

         Based upon this success (and with the  acknowledgement  of  LucasArts),
the Company's management organized  Entertainment  Digital Network ("EDN")) as a
Nevada corporation on June 26, 1992, and set up a trial network of seven studios
and developed other proprietary  technology to market T-1 digital communications
to the music,  movie and  television  industries.  On January 25, 1993,  EDN was
re-incorporated in the State of California.

         Effective  August 27, 1993,  EDN  acquired the assets of Digital  Patch
Systems ("Digital Patch"), an unrelated networking service provider, for 235,000
shares of EDN common stock and 140,000  shares of EDN preferred  stock.  At that
time,  Digital  used  MPEG-based,  audiocompression,  switched  56 and ISDN data
lines, which the Company has since adopted as its primary technology. Management
believed  that ISDN,  which had become the  standard  in the  telecommunications
industry in Europe,  Japan and many parts of the  Pacific  Rim,  would  likewise
become the standard in the U.S.  Currently,  ISDN is common in most areas of the
world. EDN also obtained non-competition agreements from the two shareholders of
Digital Patch which prohibited  these  individuals from competing with EDN for a
period of five  years in areas  where  Digital  Patch had  operated  before  the
transaction.  Following  this  transaction,  Bert  Berdis,  who owned 50% of the
outstanding shares of Digital Patch, became a Director of the Company (see "Part
I - Item 8. Directors, Executive Officers and Significant Employees" below).

         Merger With AP Office Equipment.  On or about September 20, 1995, EDN's
management  determined  that it was in EDN's best interests to effect a business
combination with a company whose shares were  publicly-traded in order to access
the public capital markets. Toward this end, EDN, its seven largest shareholders
and AP Office Equipment, Inc. ("AP"), an unrelated company, entered into a Stock
Purchase  Agreement  pursuant  to which such  shareholders  exchanged  their EDN
common and preferred  stock for 1,275,818  shares of AP common stock,  par value
$.001 per share (the "Common Stock"). In addition, (a) outstanding non-qualified
options to purchase an aggregate of 263,420 shares of EDN common stock at an

                                       8.

<PAGE>


exercise  price of $.10 per share were  converted  into  options to  purchase an
aggregate  of 230,479  shares of Common  Stock at an exercise  price of $.11 per
share,  and (b) outstanding  warrants to purchase an aggregate of 347,343 shares
of EDN common  stock at $2.625 per share,  which  terminated  as of October  31,
1996, were converted into warrants to purchase an aggregate of 303,908 shares of
Common  Stock at an  exercise  price of $3.00 per  share.  The  closing of these
transactions  was contingent  upon the successful  completion by AP of a sale of
1,500,000 shares of Common Stock at a price of $0.665 per share.

         By means of an Amendment of Articles of  Incorporation  which was filed
with the Colorado  Secretary of State on September 29, 1995, AP changed its name
to "EDnet, Inc."

         Finally, pursuant to a Stock Purchase Agreement executed by the Company
(formerly AP) and the  remaining  shareholders  of EDN,  dated as of October 18,
1995, such  shareholders  sold their EDN common stock to the Company in exchange
for 243,720 shares of Common Stock. The result was that EDN became, and remains,
a wholly-owned subsidiary of the Company.

         IBS  Transaction.  Pursuant to an Agreement and Plan of  Reorganization
dated as of June 24, 1996 (the "IBS Agreement"), the Company acquired all of the
outstanding  shares of  common  stock of IBS,  an  unrelated  internet  services
provider,  through  a  merger  of IBS  into a  subsidiary  of  the  Company.  As
consideration  for such merger,  the Company  delivered the following to the two
shareholders of IBS, Trevor Stout and Randall Schmitz:  (i) two promissory notes
in the aggregate amount of $250,000 (the "First IBS Notes"); (ii) two promissory
notes in the aggregate  amount of $250,000  (the "Second IBS Notes");  and (iii)
311,284  shares of Common  Stock.  The First IBS Notes  were due sixty (60) days
after the closing of the IBS  Agreement and were repaid by the Company in August
1996.  The Second IBS Notes  originally  provided for interest of eight  percent
(8%) and  maturity  on the  earlier of one year from the  closing  under the IBS
Agreement  or fifteen  (15) days after the  closing of a public  offering by the
Company of its Common Stock. In addition,  pursuant to an earn-out plan, Messrs.
Stout and Schmitz  were  originally  entitled to receive up to an  aggregate  of
500,000 shares of Common Stock if IBS was to meet certain specified  performance
goals during a period  commencing on the effective date of the IBS Agreement and
ending 120 days after  June 30,  1999 (the  "Earnout"),  and  Messrs.  Stout and
Schmitz entered into three-year  employment  agreements with the Company and IBS
(collectively, the "IBS Employment Agreements"). Finally, the Company granted to
three  employees  of IBS options to purchase an  aggregate  of 50,000  shares of
Common Stock under the NSO Plan (as defined  below),  at $1.25 per share,  which
options  vest over a three  year  period.  The  merger  was  accounted  for as a
purchase.  Upon the  closing of the IBS  Agreement,  Mr.  Stout was  appointed a
director of the Company and presently serves in such capacity.

         Subsequently, the Company determined that the cost of supporting IBS in
researching,   developing  and  marketing   certain   software  related  to  the
development, operation and maintenance of world-wide web sites (the "IBS Website
Software")  was, in Management's  view,  prohibitively  expensive.  Accordingly,
pursuant to an Amendment to the Agreement and Plan of Reorganization dated as of
January 31, 1997 and certain collateral documents: (i) IBS licensed

                                       9.

<PAGE>


the IBS  Website  Software  to a new  entity,  Breakthrough  Software,  Inc.,  a
California corporation  ("Breakthrough");  (ii) the Company agreed to lend up to
$250,000 to Breakthrough to be used for specified purposes, as represented by an
unsecured promissory note made by Breakthrough in favor of the Company,  payable
30 days  after  demand  after  July 1, 1997 or upon the date  that  Breakthrough
closes a financing of not less than $1,000,000; (iii) Breakthrough issued to the
Company   2,000,000  shares  of  convertible   Series  A  Preferred  Stock  (the
"Breakthrough  Series A Preferred Shares")  representing  (after conversion into
Breakthrough common stock) 40% of Breakthrough's  outstanding common stock; (iv)
Breakthrough  issued to Messrs.  Stout and Schmitz common stock representing 60%
of Breakthrough's  outstanding common stock; (v) the Company canceled the Second
Notes;  (vi) the Company reduced the number of shares of Common Stock subject to
the  Earnout  from  500,000  to  125,000;  (vii) the IBS  Employment  Agreements
terminated as of December 31, 1996; and (viii) Messrs. Stout and Schmitz entered
into consulting  agreements with the Company to provide  transition  services to
IBS for a period of three months.

         The   Breakthrough   Series  A  Preferred  Shares  have  a  liquidation
preference worth $605,000,  which represents  Management's estimate of the value
to date of the Company's capital investment in the IBS Website Software. So long
as  1,500,000   shares  of  Breakthrough   Series  A  Preferred   Shares  remain
outstanding,  the  holder  of the  Breakthrough  Series A  Preferred  Shares  is
entitled to elect one director to the  Breakthrough  board of directors  and the
affirmative  approval  of the Company is  required  to approve  certain  events,
including but not limited to, any increase or decrease in the authorized  number
of  shares  of  Breakthrough   common  or  preferred  stock,  any  amendment  of
Breakthrough's  articles of incorporation or bylaws which adversely  affects the
rights of the holders of Breakthrough Series A Preferred Shares, any issuance of
securities  on a parity  with or senior to the  Breakthrough  Series A Preferred
Shares and any issuance of any additional securities to either Messrs. Stout and
Schmitz or any trust or other entity  controlled by either of them.  The rights,
privileges and  preferences of the  Breakthrough  Series A Preferred  Shares are
contained in the Amended and Restated Articles of Incorporation of Breakthrough,
which were filed with the California Secretary of State on January 31, 1997.

Employees

         As of March 31, 1997, the Company  employs 17 persons,  and IBS employs
11 persons.

Policy Regarding Related Party Transactions

         The Company's  policy with regard to  transactions  between the Company
and related  parties is to comply with all state and federal laws governing such
transactions, to make efforts to assure that such transactions are on reasonable
terms and in the best interests of the Company and its  shareholders  and are on
the same  terms as  could be  received  from  unaffiliated  parties  and,  where
appropriate, to seek the advice of counsel with respect to such transactions.

Plan of Operation

                                       10.

<PAGE>


         As noted in the Report of  Independent  Accountants  contained  in this
Form 10-SB, the Company's  auditors,  Coopers & Lybrand L.L.P.,  have noted that
the Company has suffered  recurring losses from operations and has a net working
capital  deficiency that raises substantial doubt about the Company's ability to
continue as a going  concern.  Management  believes that the  following  plan of
operation  will enable the Company to satisfy its cash  requirements  during the
twelve month period commencing November 1, 1996:

         First,  as  discussed  more fully in "Part II - Item 4. Recent Sales of
Unregistered  Securities - Private Placement of EDnet Series A Preferred Shares"
below,  the Company has retained a broker to assist the Company in raising up to
$5,000,000 in a private placement to non-United States persons of EDnet Series A
Preferred Shares (as defined below). The first phase of this offering is for the
sale of $1,750,000 of Ednet Series A Preferred Stock which commenced February 3,
1997.  The  proceeds  from this first  phase will be used to finance  continuing
operations  and service the Senior  Secured Notes and other  liabilities  of the
Company.  Management  anticipates  that the second phase of this  offering  will
commence on or about May, 1997.

         Second,   Management   believes  that  the  Breakthrough   transactions
discussed  in IBS  Transaction  above  will  relieve  the  Company of making any
substantial  additional  funding  for the  research  and  development  costs and
marketing  expenses of the IBS  Website  Software  (except for the  Breakthrough
unsecured promissory note discussed above),  enabling the Company to concentrate
its resources on the growth of its core networking  services business during the
next twelve months.

         Third,  as  discussed  more fully in "Part II - Item 4. Recent Sales of
Unregistered  Securities - Private Placement of Note Participations"  below, the
Senior Secured Notes (as defined below),  which  originally  matured on November
15, 1996,  were extended to January 31, 1997. At that time,  the Senior  Secured
Notes  converted  into a term note with  monthly  principal  payments  beginning
February 15, 1997.  Management  believes that paying monthly  payments  required
under the term loan is preferable to paying off the entire balance of the Senior
Secured Notes and will enable the Company to use its capital for operations.  On
February 15, 1997, the Company made a $100,000  principal  payment on the Senior
Secured Notes to Morgan  Fuller (as defined  below).  On March 11, 1997,  Morgan
Fuller  verbally  agreed to defer for a two-week  period the $100,000  principal
payment  due on March 15,  1997.  Subsequently,  the  Company  received a demand
notice from  Morgan  Fuller  placing  the  Company in default  and is  currently
negotiating with Morgan Fuller and holders of Participations  (as defined below)
regarding the payment terms of the Senior Secured Notes.

         Fourth,  as discussed  more fully in "Part II - Item 4. Recent Sales of
Unregistered  Securities - Private Placement of Common Stock" below, on December
31,  1996,  the Company  initiated a private  placement of up to  $5,000,000  of
Common  Stock.  As of March 31,  1997,  the Company had raised  $265,000 in this
private  placement,  which is being used to finance  continuing  operations  and
service the Senior Secured Notes and other liabilities.

                                       11.

<PAGE>


         Management  believes  that if the full  amount  of such  offerings  are
timely raised,  further financings will not be necessary during the twelve-month
period of the plan of operation. No assurance can be given that the full amounts
(or  substantially  all of the full amounts) of such offerings can be raised. To
the extent that the full amounts of such  offerings  are not raised,  Management
may act to reduce the amount of the Company's  spending  devoted to research and
development,  reduce the size of the Company, or sell a portion of the Company's
assets. Management is continually monitoring the Company's cash position and the
status of these offerings.

ITEM 7 (OF MODEL B OF FORM 1-A).  DESCRIPTION OF PROPERTY

         The Company  operates from two offices located in San Francisco and Los
Angeles,  California. The San Francisco office, located at One Union Street, San
Francisco,  California,  is a  5,000  square  foot  facility  that  operates  as
administrative  headquarters  and  provides  the  centralized  network  hub  for
electronically   bridging  affiliate   studios,   as  well  as  overall  network
management.  The Company  leases  this  facility  pursuant  to a Sublease  dated
November 1, 1993 with Varitel Video, Inc.  ("Varitel"),  an unaffiliated entity.
This  sublease  provides for a term of five years  commencing  November 15, 1993
(with an option to extend for an additional five year term),  with monthly lease
payments  of zero during the first three  months of the term,  $5,653.39  during
months four through 24 of the term and $5,992.59  during months 25 through 60 of
the term (plus the Company's  proportionate  share of rent adjustments under the
master lease). In lieu of a security deposit,  the Company has granted Varitel a
security  interest  in  certain of the  Company's  equipment  with an  aggregate
purchase  price of  approximately  $75,000.  Varitel may terminate this sublease
upon 90 days prior written notice upon a change in the "principal  ownership" of
the Company or in the event that the  Company  engages in a  "competing  type of
film or video service business like or similar to Varitel"  excluding,  however,
any "networking service  application" which the Company engages in in connection
with its audio, video and other multimedia networking services.  The Los Angeles
office, located at 3000 Olympic Blvd., Suite 2121, Santa Monica,  California, is
a 4,000 square foot facility that serves as a sales and  demonstration  facility
and  provides  access  to  many  users  of  the  Company's   services  from  the
entertainment  industry located in Southern California.  The Company leases this
facility  pursuant to an Office Lease dated June 16, 1993 with Lantana Center, a
California limited partnership  ("Lantana"),  an unaffiliated entity. This lease
provides for a term of ten years  commencing  July 1, 1993,  with monthly  lease
payments of $7,749.50 (subject to a cost-of-living adjustment) and reimbursement
to the  Company of up to $61,015  incurred  for the  installation  of  permanent
tenant  improvements.  As discussed in "Part I - Item 11. Interest of Management
and Others in Certain  Transactions - Short-Term Loans from Officers,  Directors
and Shareholders; Guaranty of Lease" below, the Company's obligations under this
lease have been guaranteed by Mr. Kobayashi, the Chairman of the Company.

         The IBS  subsidiary  operates from an office  located in Mountain View,
California.  The Mountain View office,  located at 2083 Landings Drive, Mountain
View,  California,  is a  2,000  square  foot  facility  that  operates  as  its
administrative and operations headquarters. IBS leases this facility pursuant to
a Building Lease dated August 28, 1995, as amended by a Modification No. 1 dated
February 13, 1996, with Landmark  Investments,  Limited,  an entity unaffiliated
with

                                       12.

<PAGE>


either  IBS  or  the  Company.  This  lease,  as  amended,  provides  for a term
commencing  September  15, 1995 and ending  March 3, 1997,  with  monthly  lease
payments  from  September 15, 1995 through  September 30, 1995 of $707.19,  from
October  1, 1995  through  March 3,  1996 of  $1,580.80  and from  March 4, 1996
through March 3, 1997 of $4,348 (subject to a cost-of-living adjustment).


ITEM 8 (OF MODEL B OF FORM 1-A).  DIRECTORS,  EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES

         The following sets forth the names, ages and current positions with the
Company  held  by  Directors,  Executive  Officers  and  Significant  Employees,
together with the year such positions were assumed. Tom Kobayashi, the Chairman,
and David  Gustafson,  the Executive Vice President of Sales and Marketing,  are
brothers-in law. Other than as described in the preceding sentence,  there is no
immediate family relationship  between or among any of the Directors,  Executive
Officers  or  Significant  Employees  and  the  Company  is  not  aware  of  any
arrangement or understanding  between any Director or Executive  Officer and any
other person pursuant to which he was elected to his current position.

         Charles E. Erickson,  age 59, has served as a consultant to the Company
as its President Chief Executive Officer since April 7, 1997. From 1996 to April
1997, Mr. Erickson was the Chief Technical Officer of Assurenet  Pathways,  Inc.
(formerly Digital  Pathways,  Inc.), a supplier of secure remote access systems;
1991 to 1996,  he was the  President  and Chief  Executive  Officer  of  Digital
Pathways,  Inc.;  from 1987 to 1990 he was the  President  of Olivetti  Advanced
Technology  Center  and  responsible  for the  development  of a  broad  line of
personal  computers;  and from 1975 to 1987 he was the  Director,  Research  and
Development, of Olivetti Research and Development,  where he was responsible for
the development of video typewriters and peripheral printer systems.

         Tom  Kobayashi,  age 68,  has  served as the  Chairman  of the Board of
Directors  and a  Director  of the  Company  since  1992 and as Chief  Executive
Officer from 1992 to March 1997.  From 1986 to 1993,  he was Vice  President and
General  Manager of Skywalker.  During his tenure at  Skywalker,  the sending of
digital audio over fiber optic telephone lines was developed and the idea for an
entertainment  digital  network was  formulated.  In 1992,  with George  Lucas's
approval,  Mr. Kobayashi utilized the technology first developed at Skywalker to
found EDN.  Previously,  he was with Glen Glenn Sound,  a major sound  recording
studio in  Hollywood.  He began  with Glen  Glenn in 1964 as Vice  President  of
Finance,  later served as Vice President of Business  Affairs and Executive Vice
President and in 1983 was appointed  President and Chief Operating Officer.  Mr.
Kobayashi is a member of the American Engineering Society, the Society of Motion
Picture and Television  Engineers,  the Society of Professional  Audio Recording
Studios (of which he has been a member of the Board of Governors  for over seven
years),  the  Academy of Motion  Picture  Arts and  Sciences  and the Academy of
Television Arts and Sciences.  Mr. Kobayashi earned a Bachelor of Science degree
at the University of Southern California.

                                       13.

<PAGE>


         David Gustafson,  age 50, has served as the Executive Vice President of
Sales and  Marketing  since  March  1997 and served as the  President  and Chief
Operating  Officer of the  Company  from March 1996 to March  1997,  and as Vice
President, Marketing and Sales, from July 1992 to March 1996. He has served as a
Director  of the Company  since 1992.  Previously,  he was  President  and Chief
Operating Officer of SLT, Inc., a private New York-based  apparel  manufacturer;
Corporate  Vice  President and Director of Wacoal  America,  Inc., a $35 million
division of the $1 billion  Wacoal Corp.,  a  multi-national  consumer  products
company based in Kyoto, Japan, where his responsibilities included Merchandising
and Design,  Sales,  Marketing and Advertising;  Vice President of Marketing and
Merchandising for the Olga Company;  Management  Information  Systems Consultant
with Deloitte,  Haskins & Sells in Los Angeles;  and a computer Systems Engineer
and Manager at EDS Corp.,  working in New York, Miami and Dallas.  Mr. Gustafson
received  his  Bachelor's   degree  from  Westmont  College  in  Santa  Barbara,
California and further  training in Marketing and Executive  Management from the
graduate business schools at both the University of California,  Los Angeles and
the University of Southern California.

         Thomas Scott, age 53, has served as the Vice President-Chief Technology
Officer of the Company since 1992.  From 1985 to 1992, he was Chief Engineer for
Skywalker  Sound,  the post  production  division  of  LucasArts/Lucasfilm  Ltd.
Previously,  he was Chief Engineer of The Record Plant and eventually  worked in
film sound on the picture  Apocalypse  Now.  Mr.  Scott has been  involved  with
motion  pictures  since  then,  being  employed  at  American  Zoetrope,   Dolby
Laboratories  and LucasArts as Director of  Engineering.  During this period Mr.
Scott  received two Oscar  Academy  Awards for Best Sound on the films The Right
Stuff  and  Amadeus.  His last  LucasArts  project  was the  supervision  of the
EditDroid  and  SoundDroid  --  revolutionary  computer-based  picture and sound
editing  equipment.  Previously,  he was Chief  Engineer  and Director of Remote
Operations at Wally Heider  Recording,  one of the first  independent  recording
studios, and an engineer with the Peace Corps in Venezuela.  Mr. Scott is active
in numerous professional  organizations and standards committees,  including the
American  Engineering   Society,   Society  of  Motion  Picture  and  Television
Engineers,  the Society of Professional  Audio Recording  Studios,  the National
Academy of Recording  Arts and  Sciences and the Academy of Motion  Picture Arts
and  Sciences.  Mr.  Scott  earned  his  Bachelor  of  Science  degree  from the
Massachusetts Institute of Technology.

         Alan  Geddes,  age 47,  has  served  as the Vice  President  and  Chief
Financial Officer of the Company since July, 1996. From 1986 to 1996, he was the
Chief  Financial  Officer  of IMAR  Corporation  and  Oncogenetics,  Inc.,  both
emerging  companies  in medical  technology,  in addition  to  founding  his own
company,  California Pacific Leasing,  Inc.  Previously,  he served in corporate
management at Bio-Rad  Laboratories,  as Corporate  Controller at Fiberplastics,
Inc., was a Financial Analyst with Litton Industries and a Plant Controller with
Abbott  Laboratories.  Mr.  Geddes has a Masters in Business  Administration  in
Finance from Utah State University.

         Mark L.  Wallin,  age 27,  has  served  as the  President  of IBS since
February  1,  1997.  Previously,  he served  as the  Technical  Director  of Web
Services from June 1996 to February 1, 1997. From 1992 to 1996, he was a Project
Manager, Technical Team Leader and Application

                                       14.

<PAGE>


Integrator for IBM. He graduated from Stanford  University in 1993 with a degree
in Computer Systems Engineering.

         Trevor  Stout,  age 26, has served as a Director of the  Company  since
August  1996.  He is currently  the Chief  Executive  Officer for  Breakthrough.
Previously,  he served as the President and Chief Technical  Officer of IBS from
1995 to December 31, 1996.  Prior to co- founding IBS, from 1989 to 1995, he was
a project  manager at IBM. He pioneered the development of IBM's website and was
the manager and lead architect of IBMLink, IBM's web system for customer support
and sales  information.  Mr. Stout graduated magna cum laude from the University
of California, Los Angeles, in Computer Engineering.

         Robert J.  Wussler,  age 59, has served as a  Director  of the  Company
since  1995.  From  1994 to the  present,  he has been the  President  and Chief
Executive  Officer of Affiliate  Enterprises,  Inc.,  the company  formed by ABC
Television affiliates to pursue new business  opportunities,  including emerging
technology applications. From 1990 to 1993, he was President and Chief Executive
Officer of COMSAT Video Enterprises, where he managed the acquisition of the NBA
Denver Nuggets.  Previously,  from 1980 to 1990, he was Senior Vice President of
Turner Broadcasting,  where he oversaw the launch of CNN, Headline News and TNT,
in addition to serving as President of SuperStation  TBS, and from 1974 to 1978,
he was the President of the CBS Television Network and CBS Sports.

         Avi A. Fogel,  age 42, has served as a Director  of the  Company  since
1995.  From  1995 to the  present,  he has  been the Vice  President  of  Global
Marketing for Digital Equipment  Corporation in the Network Division.  Mr. Fogel
recently initiated a $330 million  acquisition of Lannet Data  Communications by
Madge  Networks.  From 1987 to 1995,  he served in various  roles at Lannet Data
Communications,  first as Sales and  Marketing  Manager,  then as President  and
Chief  Executive  Officer of Lannet North America and finally as Executive  Vice
President  - Global  Marketing  and  Business  Development,  where he guided the
development   of   international   and  North   American   sales  and  marketing
organizations,  and  established  customer and  partnership  relationships  with
Wellfleet  Communications,  AT&T, Mitel, Data General, Fore Systems,  Swiss Bank
Corp., Sprint and General Motors.

         Jack Kraft, age 54, has served as a Director of the Company since 1996.
He is a director of Ballas Engineering,  Gameplan, Inc. and Argus Plastics, Inc.
and is currently retained as a consultant to several  advertising and technology
firms. From 1993 to 1995, he was a senior executive with Young and Rubicam, Inc.
Prior to taking early retirement in 1993, he was the Chief Operating Officer and
Vice Chairman of  Chicago-based  Leo Burnett USA, one of the world's largest and
best known advertising agencies.  During Mr. Kraft's tenure, he made significant
contributions  to that agency's  strategic  direction and deployment as revenues
increased from $325 million to $4.3 billion.

         Phil  Ramone,  age 56, has served as a Director  of the  Company  since
1995.  Mr. Ramone is  acknowledged  as one of the top producers in the recording
industry.  Mr. Ramone's career has embraced  virtually every aspect of the music
industry.  By 1961, he had acquired his own independent studio, A & R Recording,
in New York. He has produced award-winning

                                       15.

<PAGE>


albums for such legends as Barbra  Streisand and Frank  Sinatra,  as well as for
Liza Minelli,  Elton John and Paul  McCartney.  The recording he made with Billy
Joel,  The Stranger,  was the first Compact Disc ever cut. He is also the moving
force behind a group of relative  newcomers,  such stars as Gloria Estefan,  Jon
Secada and Sinead  O'Connor.  On the technical  side, Phil Ramone is responsible
for innovations  that have changed the very face of the recording  industry.  It
was  Ramone,  for  example,  who  was  responsible  for  the  first  use  of the
solid-state  console for recording and  mastering  for Solid State  Records;  of
Dolby four-track discrete sound, with the 1976 motion picture A Star is Born, of
Dolby  optical  surround  sound for the motion  picture One Trick  Pony;  and of
digital  remote  recording  for  Songs  in the  Attic,  paving  the  way for the
technology  that led to the Compact Disc.  Mr. Ramone has received  eight Grammy
Awards,  fifteen Grammy Nominations,  one Emmy Award, has served as President of
the New York  Chapter of the  National  Academy of  Recording  Arts and Sciences
(NARAS),  was elected to the TBC Hall of Fame in 1992 and Hollywood's  Rock Walk
and is the recipient of the Platinum Music Award, the 3M Visionary Award and the
Eyes On New York Award.

         The directors  named above have been elected for one-year  terms at the
most recent  annual  shareholders'  meeting.  On January 29, 1997,  the Board of
Directors removed  Christopher  Desmond for failure to attend to his duties as a
director. In addition, Bert Berdis resigned as a Director on March 18, 1997.


ITEM 9 (OF MODEL B OF FORM 1-A). REMUNERATION OF DIRECTORS AND OFFICERS

         The  following  table  sets  forth  information  concerning  all annual
compensation paid to each of the three highest paid persons who were officers or
directors of the Company for the fiscal year ended June 30, 1996:

                                   Capacities in
  Name of individual               which remunera-                Aggregate
  or identity of group             tion was received              remuneration

  Tom Kobayashi                    Chairman and Chief             $131,000(1)
                                   Executive Officer and
                                   Director (2)

  David Gustafson                  President and Chief            $131,000(4)
                                   Operating Officer and
                                   Director (3)

  Tom Scott                        Vice President and             $ 90,000
                                   Chief Technical Officer

  Total of above                                                  $352,000

-----------

                                       16.

<PAGE>


(1)      Mr.  Kobayashi  has an  Employment  Agreement  with the  Company  which
         provides for a five-year term expiring  December 31, 2000,  with a base
         salary of $10,416  per month from  September  1, 1995 to  February  28,
         1996, with an increase to "market rate" at March 1, 1996 and every year
         thereafter.

(2)      Currently the Chairman of the Board of Directors of the Company.

(3)      Currently  the  Executive  Vice  President of Sales and Marketing and a
         Director of the Company.

(4)      Mr.  Gustafson  has an  Employment  Agreement  with the  Company  which
         provides for a five-year term expiring  December 31, 2000,  with a base
         salary of $10,416  per month from  September  1, 1995 to  February  28,
         1996, with an increase to "market rate" at March 1, 1996 and every year
         thereafter.

         Directors  of the  Company do not receive  any  compensation  for their
services as  directors  other than  reimbursement  by the Company of  reasonable
out-of-pocket  travel expenses  incurred in connection  with attending  director
meetings in person.

         As more fully  disclosed  in "Part I - Item 10 - Security  Ownership of
Management  and  Certain  Securityholders"  below,  the  Company  maintains  the
1995-1996  Nonstatutory  Stock  Option  Plan (the "NSO  Plan").  The NSO Plan is
administered by a committee  appointed by the board of directors,  consisting of
two members. The NSO Plan reserves a total of 565,000 shares of Common Stock for
option  grants to key  employees and  consultants  (including  directors) of the
Company and its  subsidiaries and provides that the option price may be equal to
or less  than the fair  market  value of the  Common  Stock on the  grant  date,
provided,  however,  in the event that the option  price is less than 85% of the
then current  market  value of the Common  Stock,  the Board of  Directors  must
approve such option grant. In addition,  the NSO Plan provides that no option be
granted  after  December 31, 1996 and requires that no option period exceed five
(5) years after the grant date.  As of December  31,  1996,  options to purchase
372,000  shares of Common Stock had been issued under the NSO Plan. The NSO Plan
was approved by the Board of Directors  on November  10, 1995.  In addition,  in
connection  with the  merger  with AP,  non-qualified  options  to  purchase  an
aggregate of 263,420 shares of EDN common stock at an exercise price of $.10 per
share issued under EDN's 1993  Flexible  Stock  Incentive  Plan (the "EDN Option
Plan") were converted into options to purchase an aggregate of 230,479 shares of
Common  Stock at an exercise  price of $.11 per share,  which  options are fully
vested.  Other than as discussed herein,  the Company does not have any pension,
profit-sharing,  stock bonus, or other benefit plans.  In addition,  the Company
makes available certain  non-monetary  benefits to its executive officers with a
view to  acquiring  and  retaining  qualified  personnel  and  facilitating  job
performance.  The Company  considers such benefits to be ordinary and incidental
business costs and expenses.

         Mr.  Kobayashi and Mr.  Gustafson have  employment  agreements with the
Company,  each dated September 1, 1995, which contain identical  non-competition
provisions.  Each provision  provides for a period of three (3) years  following
the date of the  employment  agreement,  the  employee  will  not,  directly  or
indirectly,  within any  county,  city or part  thereof  and other  areas in the
United States of America (collectively, the "Locations"), so long as the Company
continues  to be  engaged  in the same or  similar  business  or  activity  (the
"Business") in such Location: (i) own, manage, operate, control, or be connected
in any manner with the ownership, management, operation or control of any person
or entity that engages in the same

                                       17.

<PAGE>


or similar type of Business as the Business or engages in a business competitive
with the Business (a "Competitive Business"),  which includes but is not limited
to,  acting as a director,  officer,  agent,  employee,  consultant,  partner or
stockholder of a Competitive Business;  (ii) engage in any activity which is the
same as, similar to or in competition  with the Business;  (iii) interfere with,
disrupt or attempt to disrupt the business relationship, contractual, employment
or  otherwise,  between the Company and any  customer or  prospective  customer,
supplier,  lessee or employee of the Company,  including without  limitation the
customers  and  suppliers  of the Business  prior to the date of the  employment
agreement;  (iv) solicit employment for or of employees of the Company or induce
any employee to leave the employ of the  Company;  (v) lend or allow his name or
reputation to be used by or in connection with any Competitive Business; or (vi)
otherwise  allow his  skill,  knowledge  or  experience  to be used in or by any
Competitive  Business.  Each employment agreement provides that the employee may
invest in up to 5% of the shares of any public corporation without violating the
non-competition  provisions,  and  that  such  non-competition  provisions  will
survive the  termination of the employment  agreement,  other than where (a) the
employee  exercises his right to terminate the employment  agreement upon a sale
or transfer of  substantially  all of the assets of the Company,  or a change in
control of the Company,  (b) when the Company  exercises  its right to terminate
the  employment  agreement  upon  30 days  written  notice,  or (c) the  Company
breaches the  employment  agreement  and fails to cure such breach within thirty
(30) days of receipt of written notice thereof. A court applying  California law
may  decline  to  enforce  (or  may  partially  enforce)  these  non-competition
provisions.

ITEM 10 (OF MODEL B OF FORM 1-A).  SECURITY  OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS

         The  following  table sets  forth  information,  as of March 31,  1997,
regarding  shares  of Common  Stock  held of  record  by:  (i) each of the three
highest paid  persons who are  officers or  directors  of the Company;  (ii) all
officers and directors as a group; and (iii) each shareholder who owns more than
10% of any class of the Company's securities,  including those shares subject to
outstanding  options and warrants.  Unless expressly indicated  otherwise,  each
shareholder  exercises  sole  voting and  investment  power with  respect to the
shares owned.

   Title             Name and Address                               Percent
   of Class          of Owner                       Amount Owned    of Class (1)

   Common            Tom Kobayashi                     425,048        7.67%
                     One Union Street
                     San Francisco, CA  94111

   Common            David Gustafson                   135,761        3.62%
                     One Union Street
                     San Francisco, CA  94111

   Common            Tom Scott                         164,885        3.04%
                     One Union Street
                     San Francisco, CA  94111

   Common            Liviakis Financial              1,005,000       17.74%

                                       18.

<PAGE>


                     Communications, Inc.
                     2118 "P" Street, Suite C
                     Sacramento, CA  95816

   Common            All officers and
                     directors as a group (2)          943,836       17.97%

-----------

(1)      Assumes  the  exercise  by the holder of his  outstanding  options  and
         warrants;  based  upon  5,665,465  shares of Common  Stock  issued  and
         outstanding on March 31, 1997.

(2)      Includes the Common Stock owned by  Kobayashi,  Gustafson and Scott and
         218,142 shares owned by Mr. Stout.

<TABLE>
         The  following  table sets  forth  information,  as of March 31,  1997,
concerning  outstanding  options and warrants to purchase shares of Common Stock
held by:  (i)  each of the  three  highest  paid  persons  who are  officers  or
directors of the Company;  (ii) all officers and directors as a group; and (iii)
each  shareholder  who  owns  more  than  10% of  any  class  of  the  Company's
securities,  including those shares subject to outstanding options and warrants.
Unless expressly indicated otherwise, each shareholder exercises sole voting and
investment power with respect to the shares beneficially owned.
<CAPTION>

                           Title and Amount of securities called
Name of Holder             for by options, warrants or rights              Exercise Price         Date of Exercise
<S>                        <C>                                                  <C>               <C>
Tom Kobayashi              Options for 11,483 Shares of Common Stock            $0.11             Fully Vested (1)

David Gustafson            Options for 72,005 Shares of Common Stock            $0.11             Fully Vested (2)

Tom Scott                  Options for 7,316 Shares of Common Stock             $0.11             Fully Vested (3)

All officers and           Options for 17,500 Shares of Common Stock            $0.11             Fully Vested (4)
directors as a group       Options for 150,000 Shares of Common Stock           $1.25             (5)
                           Options for 50,000 Shares of Common Stock            $1.25             (6)
                           Options for 90,804 Shares of Common Stock            $0.11             (7)

-----------
<FN>
(1)      Mr.  Kobayashi  holds  options  issued  under  the EDN  Option  Plan to
         purchase an aggregate  of 11,483  shares of Common Stock at an exercise
         price of $.11 per  share,  which  are fully  vested  (see  History  and
         Organization - Merger With AP Office Equipment).
(2)      Mr.  Gustafson  holds  options  issued  under  the EDN  Option  Plan to
         purchase an aggregate  of 72,005  shares of Common Stock at an exercise
         price of $.11 per  share,  which  are fully  vested  (see  History  and
         Organization - Merger With AP Office Equipment).
(3)      Mr. Scott holds options issued under the EDN Option Plan to purchase an
         aggregate of 7,316 shares of Common Stock at an exercise  price of $.11
         per share,  which are fully  vested.  (see History and  Organization  -
         Merger With AP Office Equipment).
(4)      Granted to Phil Ramone, a Director of the Company, and issued under the
         EDN Option Plan.
(5)      Granted to Messrs.  Wussler,  Fogel and Kraft, Directors of the Company
         (for  50,000  shares  each),  and  issued  under the NSO  Plan.  75,000
         currently vested and 75,000 will vest December 31, 1997.

                                       19.

<PAGE>


(6)      Granted to Mr. Geddes,  the Chief Financial  Officer of the Company and
         issued  under  the  NSO  Plan.  One-third  vested  December  31,  1996,
         one-third  will vest December 31, 1997 and one-third will vest December
         31, 1998.
(7)      Granted to Messrs.  Kobayashi,  Gustafson and Scott (see footnotes 1, 2
         and 3 above).
</FN>
</TABLE>


ITEM 11 (OF MODEL B OF FORM 1-A).  INTEREST OF MANAGEMENT  AND OTHERS IN CERTAIN
TRANSACTIONS

Investment Banking and Brokerage Services

      All of the agreements described below were negotiated with unrelated third
parties on an arms-length basis.

      Century Financial Partners, Inc. Pursuant to a Consulting Agreement, dated
July 31, 1995, between EDN and Century Financial Partners, Inc. ("Century"), EDN
hired Century to advise EDN with respect to a merger of EDN with an entity whose
securities were publicly traded.  Such consulting  agreement granted Century the
exclusive  right to  represent  EDN, on a best  efforts  basis,  to  prospective
investors for financing and general corporate  advisory services for a period of
three years, and a right of first refusal to provide investment banking services
for a period of three  years.  Century  advised the Company  with respect to the
transaction  with AP (see "Part II - Item 6.  Description  of Business - History
and  Organization  - Merger with AP Office  Equipment").  Century  has  verbally
consented to the Company's  agreements with Morgan Fuller (described  below). As
payment for Century's services,  the Century consulting  agreement provided that
EDN would grant to Mr. Irawan Onggara ("Mr.  Onggara"),  an investor in Century,
and a  shareholder  of the Company  holding an  aggregate  of 100,000  shares of
Common Stock, an option to purchase  1,000,000 shares of the common stock of any
publicly  traded  entity into which EDN would merge,  at $1.25 per share,  which
option shares would be registered "immediately" by EDN with the SEC on Form S-8.
Management does not believe that such a registration is legally  possible due to
the fact that Mr. Onggara is not an employee of the Company and plans to address
this  issue more  completely  in the near  future.  The  Company  has had verbal
discussions  with Mr.  Onggara  with respect to reducing the number of shares of
Common  Stock  subject to such  option to 805,000  shares.  When Mr.  Onggara is
granted  options and  assuming the  exercise of those  options,  he may become a
shareholder holding more than ten percent of the outstanding Common Stock.

      Liviakis   Financial   Communications,   Inc.  Pursuant  to  a  Consulting
Agreement,  dated as of January 12,  1996,  between  the  Company  and  Liviakis
Financial Communications,  Inc., a California corporation ("Liviakis"), Liviakis
agreed to provide public relations consulting services to the Company for a term
of one year ending on January 11, 1997.  As payment for its  services,  Liviakis
received 390,000  unregistered  shares of Common Stock from the Company.  At the
end of the  term of the  consulting  agreement,  Liviakis  may  demand  that the
Company use its best  efforts to register  such shares with the  Securities  and
Exchange Commission (the "SEC").  Pursuant to an additional Consulting Agreement
effective as of January 12,  1997,  between the Company and  Liviakis,  Liviakis
agreed to provide  consulting  services  to the  Company  for a term of one year
ending on January  2,  1998.  As payment  for its  services,  Liviakis  received
490,000 unregistered shares of Common Stock from the Company. At the end

                                       20.

<PAGE>


of the term of the  consulting  agreement,  Liviakis  shall have the same demand
registration  rights to register  such shares with the SEC as given to investors
in the December 1996 Private  Placement (as defined in "Part II - Item 4. Recent
Sales of Unregistered Securities - Private Placement of Common Stock" below.

      Morgan Fuller  Capital Group L.L.C.  Pursuant to engagement  letters dated
May 20, June 25,  June 28,  June 28,  November 19 and  November  21,  1996,  the
Company retained Morgan Fuller Capital Group L.L.C. ("Morgan Fuller") to provide
investment banking services to, and raise capital for, the Company. As discussed
more fully in "Part II - Item 4. Recent Sales of Unregistered Securities" below,
as of March 31,  1997,  the Company  had:  (i)  granted  Morgan  Fuller  250,000
Warrants at an exercise price of $6.37 per share for general investment advisory
services;  (ii) delivered the Senior Secured Notes (as defined below) payable to
Morgan Fuller in the aggregate principal amount of $1,000,000; (iii) paid Morgan
Fuller a loan fee of five  percent  (5%) of the  amount  of the  Senior  Secured
Notes;  and (iv) granted Morgan Fuller 39,255  warrants to purchase Common Stock
("Warrants")  at an exercise  price of $4.25 and 45,205  Warrants at an exercise
price of $3.69 in connection with the sale of Participations (as defined below).
The June 28, 1996 engagement  letter provides that in the event that the Company
fails to proceed  with a  subsequent  Regulation  S  financing,  the  Company is
obligated  to pay to  Morgan  Fuller  a cash fee of  $140,000  and  $200,000  in
aggregate  amount of Warrants  at an exercise  price equal to the lesser of: (i)
$3.00;  or (ii) sixty  percent  (60%) of the  average  closing  bid price of the
Common Stock during a consecutive ten (10) day period immediately  preceding the
issuance date of the Warrants. Because the Company has engaged another broker in
connection  with such an  offering  (see  "Net  Financial  International,  Ltd."
below), the Company has had oral discussions with Morgan Fuller regarding Morgan
Fuller's  waiver of this  provision.  In  connection  with the  extension of the
Participations, the Company agreed to pay to Morgan Fuller a cash fee of one and
one-half  percent  (1.5%) of the amount of the Senior  Secured Notes and granted
Morgan Fuller 55,970 three-year Warrants with an exercise price of $2.68.

      LBC Capital Resources, Inc. Pursuant to an engagement letter dated October
17,  1996 (the "LBC  Letter  Agreement")  between  the  Company  and LBC Capital
Resources,  Inc.  ("LBC"),  the Company retained LBC to solicit a broad range of
transactions on behalf of the Company,  including equity and debt financings and
to provide advice with respect to potential merger and acquisition transactions.
LBC would be paid fees only upon the successful closing of any such transaction.
Such fees would be comprised of (i) a cash fee in the amount of six percent (6%)
of the  gross  amount  of such  transaction  (to be paid  as such  proceeds  are
received by the  Company) and (ii)  warrants as described in the next  sentence.
Upon the  completion of one or more  transactions,  for each  $1,000,000 of such
transaction amount, after transactions aggregating at least $1,000,000 have been
closed,  LBC would be entitled  to purchase  from the Company for $2,500 a seven
year warrant to purchase one hundred twenty thousand  (120,000) shares of Common
Stock, at an exercise price per share equal to one hundred  twenty-five  percent
(125%) of the average  closing price for the five (5) trading days preceding the
execution of the LBC Letter  Agreement.  The term of the LBC Letter Agreement is
sixty (60) days and thereafter, will remain in effect until terminated by either
party upon ten (10) days written

                                       21.

<PAGE>


notice. Upon execution of the LBC Letter Agreement, the Company also paid to LBC
a $2,500 non-accountable expense allowance.

      NET Financial International, Ltd. On January 31, 1997, the Company entered
into a  Consulting  Agreement  with  NET  Financial  International,  Ltd.  ("NET
Financial"),  pursuant to which NET Financial  agreed to act as placement  agent
for the sale of up to $5,000,000 of EDnet Series A Convertible  Preferred  Stock
(the "EDnet Series A Preferred  Shares") to non-United  States persons in one or
more offerings exempt from the  registration  requirements of the Securities Act
pursuant to Regulation S  promulgated  under the  Securities  Act in two phases,
with the first phase  commenced on February 3, 1997.  For a description  of this
offering, see "Part II - Item 4. Recent Sales of Unregistered Securities" below.
The  Company  has  agreed to pay NET  Financial  fees  equal to 10% of the total
capital  raised  in the  financing  as well as  issuing  to it a  warrant  (with
registration  rights)  exercisable for two years allowing the purchase of shares
of  Common  Stock  with a value  on the date of the  closing  equal to 6% of the
capital raised in the  financing,  at an exercise price equal to the closing bid
price of the Common Stock on the date of the closing of the  financing.  The NET
Financial  consulting  agreement  has a term of three months and  thereafter  is
terminable by either party upon ten days prior written notice.  In addition,  in
the event that the Company seeks  additional  financing  during the twelve month
period  after the  execution  of the NET  Financial  consulting  agreement,  the
Company  must give NET  Financial  the  right of first  refusal  to obtain  such
additional financing, upon the compensation terms described above.

Short-Term Loans from Officers, Directors and Shareholders; Guaranty of Lease

      Several of the officers and  directors of the Company have made short term
loans to the Company  pursuant to promissory  notes each  providing for maturity
ninety  days  after  the  date  thereof  and  simple  interest  of 6% on  unpaid
principal.  Such promissory  notes are overdue.  Mr. Kobayashi made loans in the
aggregate  amount of $36,000,  as evidenced by promissory  notes dated from June
11, 1993 to February 10, 1994. As of March 31, 1997, unpaid principal (excluding
interest)  of $24,000 was due on Mr.  Kobayashi's  notes.  Mr.  Scott,  the Vice
President  and  Chief  Technical  Officer  of the  Company,  made  loans  in the
aggregate amount of $43,050,  as evidenced by promissory notes dated from August
6, 1993 to June 12, 1995.  As of March 31,  1997,  unpaid  principal  (excluding
interest) of $16,550 was due on Mr. Scott's notes. Each of these individuals has
agreed not to declare a default under these notes for an  indefinite  period and
to accept repayment by the Company at a future date.

      Mr. Onggara has made three loans to the Company in the aggregate amount of
$425,000, pursuant to: (a) a promissory note in the principal amount of $250,000
dated  February 8, 1996 with a maturity date of August 8, 1996; (b) a promissory
note in the  principal  amount of $100,000  dated April 18, 1996 with a maturity
date of October 18, 1996; and (c) a promissory  note in the principal  amount of
$75,000 dated May 20, 1996 with a maturity  date of November 20, 1996.  All such
promissory  notes provide for interest of 7% on unpaid principal and are secured
by a subordinate  security interest in the accounts  receivable,  chattel paper,
accounts and certain  other assets of the Company.  In August 1996,  the Company
made aggregate  principal payments of $120,000 to Mr. Onggara on the first note.
Mr. Onggara has

                                       22.

<PAGE>


verbally  agreed to extend the  maturity  date of such  notes for an  indefinite
period and to accept  repayment by the Company at a future date,  and readvanced
$35,000  to the  Company  under the first  note.  As of March 31,  1997,  unpaid
principal (excluding interest) of $340,000 was due on Mr. Onggara's loans.

         Mr. Kobayashi executed a Guaranty of Lease in favor of Lantana pursuant
to which Mr. Kobayashi  personally  guaranteed EDN's obligations under its lease
for the Company's  Los Angeles  office  premises.  Mr.  Kobayashi's  guaranty is
limited to $48,225 for so long as he remains the chief  executive  officer,  and
maintains  voting  control,  of the  Company.  Because  Mr.  Kobayashi  does not
currently  have  voting  control of the  Company,  his  guarantee  is  therefore
unlimited.  Mr.  Kobayashi  has had verbal  discussions  with Lantana  regarding
amending the Guaranty of Lease to eliminate the voting control condition.


ITEM 12 (OF MODEL B OF FORM 1-A).  SECURITIES BEING OFFERED

      Pursuant  to this Form  10-SB,  the  Company is  registering  its class of
Common Stock under Section 12(b) of the Act but no Common Stock is being offered
for sale.  The  Company's  Articles of  Incorporation  authorize the issuance of
50,000,000  shares of Common  Stock,  $.001 par value per share,  and  5,000,000
shares of non-voting  preferred stock,  $.001 par value per share.  Dividends in
cash,  property  or shares  may be paid,  as and when  declared  by the Board of
Directors,  out of funds legally available  therefor.  Each outstanding share of
Common Stock is entitled to one vote, and each fractional  share of Common Stock
is entitled to a corresponding  fractional  vote, on each matter  submitted to a
vote of  shareholders.  Each share of Common Stock is entitled to participate in
distributions upon liquidation,  dissolution or winding up of the Company, when,
as and if  declared  by the Board of  Directors  from  funds  legally  available
therefor,  subject to  preferences,  if any,  granted  to  holders of  preferred
shares. Holders of Common Stock have no preemptive rights to purchase, subscribe
for or otherwise  acquire  shares of the Company's  stock,  rights,  warrants or
options to purchase  stock or securities of any kind  convertible  into stock of
the Company.  There are no conversion rights,  redemption  provisions or sinking
fund provisions  relating to the Common Stock. All outstanding  shares of Common
Stock are fully paid and nonassessable.

      Section  7-106-203(2)  of  the  Colorado  Corporation  Business  Act  (the
"Colorado  Act")  provides  that unless  provided  otherwise in a  corporation's
articles of  incorporation,  a shareholder is not personally liable for the acts
or debts of the  corporation,  except  that such  person may  become  personally
liable by reason of such person's own acts or conduct. The Company's Articles of
Incorporation do not provide otherwise. See also the description of the Warrants
contained in "Part II - Item 4. Recent Sales of Unregistered Securities" below.

      Other  than the fact  that the  Company's  shareholders  are  entitled  to
dissenters'  rights under the  Colorado  Act and Section  2(d) of the  Company's
Bylaws,  which  provides that the  shareholders  may amend the Bylaws to provide
that the  director  be divided  into not more than four  classes  whose terms of
office would expire at different times, there are no provisions in the

                                       23.

<PAGE>


Company's  Articles  of  Incorporation  or Bylaws  which would  delay,  defer or
prevent a change in control of the Company.

      Commencing  on February 3, 1997,  the Company  offered up to $1,750,000 of
EDnet Series A Preferred Shares at $1,000 per share to non-United States persons
in an offering exempt from the  registration  requirements of the Securities Act
pursuant to Regulation S promulgated  under the  Securities  Act. For a detailed
description  of the  EDnet  Series A  Preferred  Shares,  see "Part II - Item 4.
Recent Sales of  Unregistered  Securities - Private  Placement of EDnet Series A
Preferred Shares."

                                       24.

<PAGE>


                                     PART II


ITEM 1. MARKET PRICE OF AND  DIVIDENDS  ON THE  REGISTRANT'S  COMMON  EQUITY AND
OTHER SHAREHOLDER MATTERS

(a)   Market Information

      Since  November  1995,  the Common  Stock has been trading on the National
Association  of  Securities  Dealers  Automated  Quotation  Bulletin  Board (the
"Nasdaq  Bulletin  Board") under the symbol "DNET." Prior to November 1995, AP's
common stock was not traded on the Nasdaq  Bulletin  Board.  The following table
shows  the high and low bid and ask  prices  of the  stock  during  the  periods
indicated  (which  information  has been  obtained  from the  Trading and Market
Services at The Nasdaq Stock Market, Inc.):

                                            Bid Prices (1)         Ask Prices

                                          High       Low        High       Low

Quarter ended March 31, 1997             $2.19      $1.06      $2.31      $1.25

Quarter ended December 31, 1996          $3.44      $1.00      $3.75      $1.06

Quarter ended September 30, 1996         $3.75      $3.00      $4.25      $3.25

Quarter ended June 30, 1996              $7.1       $4.63      $7.63      $5.00

Quarter ended March 31, 1996             $5.88      $2.00      $6.25      $2.56

Quarter ended December 31, 1995          $3.69      $2.00      $4.12      $2.88

-----------

(1)      The bid prices reflect  inter-dealer  prices,  without retail  mark-up,
         mark-down or commission and may not represent actual transactions.

(b)      Holders

         As of March 31,  1997  there  were 526  holders of record of the Common
Stock.

(c)      Dividends

         The  Company  has never paid cash  dividends  on the  Common  Stock and
intends to utilize  current  resources to expand its operations.  Moreover,  the
Warrants restrict the ability of the

                                       25.

<PAGE>


Company to pay dividends. Therefore, the Company anticipates that cash dividends
will not be paid on the Common Stock in the foreseeable future.


ITEM 2.  LEGAL PROCEEDINGS

         The Company is not a party to any material  pending  legal  proceedings
other than  ordinary  litigation  which,  in the opinion of the  Management,  is
incidental to the business of the Company.


ITEM 3.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         None.


ITEM 4.  RECENT SALES OF UNREGISTERED SECURITIES

         Private  Placement of Units.  Commencing on or about June 26, 1996, the
Company  commenced a private  placement of up to  $3,000,000 of Units (each Unit
consisting of one share of Common Stock and one  Warrant),  for a price per Unit
equal to the lesser of: (i) $3.00;  or (ii) the average closing bid price of the
Common Stock during a consecutive thirty (30) day period  immediately  preceding
the  termination of the offering minus thirty percent (30%) (the "Stock Purchase
Price").  The purchase  price for each Warrant is one-tenth of one cent ($0.001)
per Warrant. Each Warrant is exercisable until July 31, 1999, provided, however,
that in the event that the average closing bid price of the Common Stock exceeds
one hundred sixty  percent  (160%) of the Stock  Purchase  Price for thirty (30)
consecutive  trading  days,  then the Company may,  within three  business  days
following  the end of such thirty (30) day period,  give notice of its intent to
repurchase  the Warrants at a purchase  price of one-tenth of one cent  ($0.001)
per Warrant, in which case Holders will have (30) days following the date of the
Company's  notice to exercise the Warrants.  Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise  price equal to the lesser of:
(i) $4.75;  or (ii) the average  closing bid price of the Common  Stock during a
consecutive thirty (30) day period immediately  preceding the termination of the
offering  (subject to  adjustment in certain  circumstances).  Holders of Common
Stock and Warrants have been granted piggyback and Form S-3 registration  rights
for the Common Stock (and the Common Stock underlying the Warrants).

         The Common Stock, the Warrants and the shares  purchasable  pursuant to
the Warrants were offered and sold only to "accredited  investors" as defined in
Regulation  D  promulgated  under the  Securities  Act of 1933,  as amended (the
"Securities   Act")  in  a  private   placement  exempt  from  the  registration
requirements  of the  Securities  Act  under  Rule  506  promulgated  under  the
Securities  Act. The Company has agreed to pay the following  fees in connection
with sales of Units:  (i) to Morgan Fuller (or any other broker selling Units) a
brokerage fee of eight  percent (8%) of the value of Units sold;  (ii) to Morgan
Fuller  a fee of five  percent  (5%) of the  value of  Units  sold by any  other
broker; and (iii) to Morgan Fuller that number of Warrants

                                      26.

<PAGE>


equal to  twenty  percent  (20%) of the  value of Units  sold by  Morgan  Fuller
divided by the  market  bid price of the  Common  Stock on the day the Units are
sold, at such price. This offering was terminated on November 30, 1996 and as of
such date the Company had itself sold an aggregate of $555,000 of Units directly
and had not paid any brokerage fees or issued any Warrants to Morgan Fuller.

         Private Placement of Note Participations. On or about July 3, 1996, the
Company delivered to Morgan Fuller $1,000,000 of Senior Secured Promissory Notes
(the "Senior Secured Notes"), made by the Company, as debtor, in favor of Morgan
Fuller,  as lender.  The Senior Secured Notes are secured by a broad lien on the
Company's  assets and provide for interest at the rate of fourteen percent (14%)
per annum and were originally due on November 15, 1996, provided,  however, that
if the  principal  and accrued  interest  was not repaid on such date,  the loan
represented by the Senior Secured Notes would be converted into a term loan with
monthly principal payments of $100,000  commencing December 1, 1996 and interest
at  eighteen  percent  (18%) per annum.  Morgan  Fuller  offered  participations
("Participations")   in  the  Senior   Secured   Notes.   Investors   purchasing
Participations  have also  received  that number of Warrants  equal to one-sixth
(1/6) of the aggregate dollar amount of Participations  purchased divided by the
exercise price (as discussed below), at exercise prices of $4.25 and $3.69. Each
Warrant is exercisable until July 31, 1999, provided, however, that in the event
that the average closing bid price of the Common Stock exceeds one hundred sixty
percent (160%) of the exercise price for thirty (30)  consecutive  trading days,
then the Company  may,  within three  business  days  following  the end of such
thirty (30) day period,  give notice of its intent to repurchase the Warrants at
a purchase  price of one-tenth of one cent  ($0.001) per Warrant,  in which case
Holders  will have  (30)  days  following  the date of the  Company's  notice to
exercise the Warrants. Each Warrant entitles the holder to purchase one share of
Common  Stock at an exercise  price equal to the closing bid price of the Common
Stock  on  the  date  of  the  Note(s)  in  which  the  investor  has  purchased
Participations  (subject to adjustment in certain  circumstances).  The purchase
price for each  Warrant is one-tenth  of one cent  ($0.001)  per Warrant.  As of
March  31,  1997,   Morgan  Fuller  has  sold  an  aggregate  of  $1,000,000  of
Participations.

         The Participations, the Warrants and the shares purchasable pursuant to
the  Warrants  have been  offered  and sold only to  "accredited  investors"  as
defined in Regulation D promulgated  under the  Securities  Act and the original
execution  and  delivery  of the  Senior  Secured  Notes  and  the  offering  of
Participations   was  a  private   placement  of  securities   exempt  from  the
registration requirements of the Securities Act under Rule 506 promulgated under
the Securities Act. For Morgan  Fuller's  services in connection with the Senior
Secured Notes and selling the  Participations,  the Company has: (i) paid Morgan
Fuller a loan fee of five  percent  (5%) of the  amount  of the  Senior  Secured
Notes;  and (ii) granted Morgan Fuller 39,255  Warrants to purchase Common Stock
at an exercise  price of $4.25,  and 45,205  Warrants  at an  exercise  price of
$3.69. Holders of Warrants have been granted piggyback and Form S-3 registration
rights for the Common Stock  underlying  the  Warrants.  This  offering has been
terminated.

         Pursuant to that  Amendment No. 1 to Senior  Secured  Promissory  Notes
dated as of November 15, 1996,  the Company and Morgan Fuller  extended the term
of the Senior Secured

                                      27.

<PAGE>


Notes to January 31, 1997.  Pursuant to an engagement  letter dated November 19,
1996,  in which Morgan  Fuller agreed to use its best efforts to obtain a 75 day
extension of the Participations, the Participations were extended to January 31,
1997. On January 31, 1997,  the  indebtedness  represented by the Senior Secured
Notes  converted  into a term loan with  monthly  principal  payments  beginning
February 15, 1997. In connection with the extension of the  Participations,  the
Company  has  agreed  to pay to  Morgan  Fuller a cash  fee of one and  one-half
percent  (1.5%) of the amount of the Senior  Secured  Notes and  granted  Morgan
Fuller or its nominees  55,970  three-year  Warrants  with an exercise  price of
$2.68.

         Pursuant to engagement letters dated May 20, June 25, June 28, June 28,
November 19 and November 21,  1996,  and as of March 31, 1997,  the Company had:
(i) granted  Morgan Fuller  250,000  Warrants at an exercise  price of $6.37 per
share for general investment  advisory services;  and (ii) granted Morgan Fuller
39,255 Warrants at an exercise price of $4.25 and 45,205 Warrants at an exercise
price of $3.69 in connection with the sale of Participations. In connection with
the extension of the  Participations,  the Company  granted Morgan Fuller 55,970
three-year Warrants with an exercise price of $2.68.

         On February 15, 1997, the Company made a $100,000  principal payment on
the Senior  Secured  Notes to Morgan  Fuller.  On March 11, 1997,  Morgan Fuller
verbally  agreed to defer for a two-week period the $100,000  principal  payment
due on March 15, 1997.  Subsequently,  the Company received a demand notice from
Morgan Fuller placing the Company in default and is currently  negotiating  with
Morgan Fuller and holders of  Participations  regarding the payment terms of the
Senior Secured Notes.

         Private  Placement of Common Stock.  On December 31, 1996,  the Company
initiated a private  placement of up to  $5,000,000 of Common Stock at $1.00 per
share (the  "December  1996  Private  Placement").  This  Common  Stock is being
offered  and sold only to  "accredited  investors"  as defined in  Regulation  D
promulgated under the Securities Act and the offering of such Common Stock was a
private placement of securities exempt from the registration requirements of the
Securities Act under Rule 506 promulgated  under the Securities Act.  Holders of
this Common Stock have been granted piggyback and Form S-3 registration  rights.
The Company has agreed to pay to brokers selling Common Stock in this offering a
brokerage  fee of eight  percent (8%) of the Common Stock sold.  As of March 31,
1997, the Company had raised $265,000 in this private  placement.  This offering
is ongoing.

         Private  Placement of EDnet Series A Preferred  Shares.  Commencing  on
February 3, 1997, the Company  commenced a private placement of up to $1,750,000
of EDnet  Series A  Preferred  Shares at $1,000 per share to  non-United  States
persons  in an  offering  exempt  from  the  registration  requirements  of  the
Securities Act pursuant to Regulation S promulgated  under the  Securities  Act.
The terms of the EDnet Series A Preferred Shares are described below. The Series
A Preferred Shares are convertible into Common Stock at any time until the third
anniversary  of their  issuance  at the lesser of 70% of: (i) the average of the
closing  bid  price  of the  Common  Stock on the five  trading  days  preceding
conversion (the "Market  Price");  or (ii) the average of the closing bid prices
for the  Common  Stock on the five  trading  days  preceding  the  closing  (the
"Closing Price"), but if the Market Price or the Closing Price is less

                                       28.

<PAGE>


than $1.43 per share it shall be deemed to be $1.43 per share (the "Floor"). The
Series A Preferred Shares are also subject to mandatory  conversion on the third
anniversary  of their  issuance at the lesser of 70% of the Market  Price or the
Closing Price,  subject to the Floor.  Upon conversion,  the holders of Series A
Preferred  Shares  will be  paid a 6%  cumulative  dividend  measured  from  the
issuance  date of the Series A Preferred  Shares  through the  conversion  date,
payable in Common  Stock  valued at the  Market  Price.  The Series A  Preferred
Shares have a liquidation  preference of $1,000 per share and all other stock of
the Company are  subordinate to such  preference.  Holders of Series A Preferred
Shares or the underlying  conversion  Common Stock will be granted piggyback and
Form S-3  registration  rights for the underlying  Common Stock. As of March 31,
1997, the Company had raised $150,000 in this private  placement.  This offering
is ongoing.  Management  anticipates that the second phase of this offering will
commence  on or  about  May,  1997.  The  Company  has also  paid NET  Financial
placement  fees further  described in "Part I - Item 11.  Interest of Management
and Others in Certain Transactions - Investment Banking and Brokerage Services -
Net Financial International, Ltd.".

         Onggara Option.  As discussed further in "Part I - Item 11. Interest of
Management  and Others in Certain  Transactions,"  EDN entered into a Consulting
Agreement, dated July 31, 1995, with Century. As payment for Century's services,
such  consulting  agreement  provided  that EDN would grant to Mr.  Onggara,  an
investor in Century,  and a shareholder  of the Company  holding an aggregate of
100,000 shares of Common Stock,  an option to purchase  1,000,000  shares of the
common stock of any publicly  traded entity into which EDN would merge, at $1.25
per share, which option shares would be registered "immediately" by EDN with the
SEC on Form S-8. Management does not believe that such a registration is legally
possible due to the fact that Mr.  Onggara is not an employee of the Company and
plans to address this issue more completely in the near future.  The Company has
had verbal  discussions  with Mr. Onggara with respect to reducing the number of
shares of Common  Stock  subject  to such  option to  805,000  shares.  When Mr.
Onggara is granted  options and assuming the exercise of those  options,  he may
become a  shareholder  holding more than ten percent of the  outstanding  Common
Stock.

         Merger With AP Office  Equipment.  As discussed more fully in "Part I -
Item 6.  Description  of  Business - History and  Organization  - Merger With AP
Office  Equipment," on or about September 20, 1995, EDN's management  determined
that it was in EDN's  best  interests  to effect a business  combination  with a
company whose shares were  publicly-traded in order to access the public capital
markets.  Toward  this end,  EDN,  its  seven  largest  shareholders  and AP, an
unrelated  company,  entered into a Stock Purchase  Agreement  pursuant to which
such  shareholders  exchanged their EDN common and preferred stock for 1,275,818
shares of AP Common Stock. In addition, (a) outstanding non-qualified options to
purchase an aggregate of 263,420 shares of EDN common stock at an exercise price
of $.10 per share were  converted  into  options to  purchase  an  aggregate  of
230,479 shares of Common Stock at an exercise  price of $.11 per share,  and (b)
outstanding  warrants to purchase an aggregate  of 347,343  shares of EDN common
stock at $2.625  per  share,  which  terminated  as of October  31,  1996,  were
converted  into  warrants to purchase an aggregate  of 303,908  shares of Common
Stock at an exercise price of $3.00 per share. The closing of these transactions
was contingent upon the successful

                                       29.

<PAGE>


completion  by AP of a sale of  1,500,000  shares of Common  Stock at a price of
$0.665 per share.  By means of an Amendment of Articles of  Incorporation  which
was filed with the Colorado Secretary of State on September 29, 1995, AP changed
its name to  "EDnet,  Inc."  Finally,  pursuant  to a Stock  Purchase  Agreement
executed by the Company  (formerly  AP) and the remaining  shareholders  of EDN,
dated as of October 18, 1995, such  shareholders  sold their EDN common stock to
the Company in exchange for 243,720 shares of Common Stock.  The result was that
EDN became, and remains, a wholly-owned subsidiary of the Company.

         IBS  Transaction.  As  discussed  more  fully  in  "Part  I -  Item  6.
Description  of  Business  -  History  and   Organization  -  IBS   Transaction;
Breakthrough,"  pursuant to the IBS Agreement,  the Company  acquired all of the
outstanding  shares of  common  stock of IBS,  an  unrelated  internet  services
provider,  through  a  merger  of IBS  into a  subsidiary  of  the  Company.  As
consideration for such merger,  the Company delivered to the two shareholders of
IBS,  Trevor Stout and Randall  Schmitz,  among other things,  311,284 shares of
Common  Stock.  In addition,  pursuant to an earn-out  plan,  Messrs.  Stout and
Schmitz  were  granted  the  Earnout,  pursuant  to which they were  entitled to
receive up to an aggregate of 500,000  shares of Common Stock if IBS was to meet
certain specified  performance goals during a period commencing on the effective
date of the IBS Agreement  and ending 120 days after June 30, 1999.  The Company
also  granted to three  employees  of IBS options to purchase  an  aggregate  of
50,000  shares of Common  Stock  under  the NSO Plan at $1.25 per  share,  which
options vest over a three year period.  These sales of securities were a private
placement exempt from the registration  requirements of the Securities Act under
Rule 506 promulgated under the Securities Act. Subsequently, the Company entered
into an  Amendment  to the  Agreement  and  Plan of  Reorganization  dated as of
January 31,  1997 and certain  collateral  documents,  pursuant to which,  among
other things,  the Company  reduced the number of shares of Common Stock subject
to the Earnout from 500,000 to 125,000.

         Liviakis  Financial  Communications,  Inc. As  discussed  more fully in
"Part I Item 11.  Interest of Management  and Others in Certain  Transactions  -
Investment  Banking  and  Brokerage  Services,"  the  Company  is a  party  to a
Consulting  Agreement,  dated as of January 12, 1996,  with  Liviakis for public
relations  consulting services.  As payment for its services,  Liviakis received
390,000  unregistered  shares  of Common  Stock  from the  Company  in a private
placement to an  "accredited  investor" as defined in  Regulation D  promulgated
under the  Securities  Act  exempt  from the  registration  requirements  of the
Securities Act under Rule 506  promulgated  under the Securities Act. At the end
of the term of the  consulting  agreement,  Liviakis may demand that the Company
use its best  efforts to  register  such  shares  with the SEC.  Pursuant  to an
additional  Consulting  Agreement  effective as of January 12, 1997, between the
Company and Liviakis,  Liviakis  agreed to provide public  relations  consulting
services to the  Company  for a term of one year  ending on January 2, 1998.  As
payment for its  services,  Liviakis  received  490,000  unregistered  shares of
Common Stock from the Company in a private placement to an "accredited investor"
as defined in Regulation D promulgated  under the Securities Act exempt from the
registration requirements of the Securities Act under Rule 506 promulgated under
the Securities Act. At the end of the term of the consulting agreement, Liviakis
shall have the same demand registration rights to register such shares with

                                       30.

<PAGE>


the SEC as given to investors in the December 1996 Private Placement (as defined
in  "Part  II - Item 4.  Recent  Sales  of  Unregistered  Securities  -  Private
Placement of Common Stock."

         Issuances to Employees.  During fiscal 1996, the Company issued 395,228
shares of Common Stock to certain of its officers and directors and employees in
lieu of payroll.  Such shares were issued in a private placement exempt from the
registration requirements of the Securities Act under Rule 504 promulgated under
the Securities Act.

         The Company has filed,  or is in the  process of filing,  all  required
filings on Form D with respect to the transactions discussed above.

ITEM 5.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Section  7-108-402(1) of the Colorado Corporation Business Act provides
that a  corporation  may, if it so provides  in its  articles of  incorporation,
eliminate or limit the personal  liability of a director to the  corporation  or
its  shareholders  for  monetary  damages  for  breach  of  fiduciary  duty as a
director;  except  that any such  provision  shall  not  eliminate  or limit the
liability of a director to the corporation or to its  shareholders  for monetary
damages for any breach of the director's  duty of loyalty to the  corporation or
its  shareholders,  acts  or  omissions  not in  good  faith  or  which  involve
intentional  misconduct or a knowing violation of law, an unlawful distribution,
or any  transaction  from which the director  directly or indirectly  derived an
improper   personal  benefit.   Article  XIII  of  the  Company's   Articles  of
Incorporation  provides that the Board of Director of the Company shall have the
power to indemnify its directors and officers  against  expenses and liabilities
they incur to defend,  settle or satisfy  any civil or criminal  action  brought
against  them on account of their  being or having  been  company  directors  or
officers  unless,  in any such  action,  they are  adjudged  to have  acted with
negligence or engaged in misconduct.  Insofar as indemnification for liabilities
arising under the  Securities  Act and the  Securities  Exchange Act of 1934, as
amended,  (collectively,  the "Acts") may be permitted to directors, officers or
controlling  persons  pursuant  to  foregoing  provisions,  the Company has been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Acts and is, therefore, unenforceable.

                                       31.

<PAGE>



                                    PART F/S

                              FINANCIAL STATEMENTS

         Attached are audited financial  statements for EDnet, Inc. and Internet
Worldwide  Business  Solutions  for the year ended June 30, 1996.  The following
financial  statements  are attached to this report and filed as a part  thereof.
See pages F-1 through F-32.

EDnet, Inc.

1.  Table of Contents
2.  Report of Independent Accountants
3.  Consolidated Balance Sheet
4.  Consolidated Statements of Operations
5.  Consolidated Statements of Stockholders' Equity
6.  Consolidated Statements of Cash Flows
7.  Notes to Consolidated Financial Statements

Internet Worldwide Business Solutions

1.  Table of Contents
2.  Report of Independent Accountants
3.  Balance Sheet
4.  Statement of Operations
5.  Statement of Changes in Stockholders' Equity
6.  Statement of Cash Flows
7.  Notes to Financial Statements

         Also  attached  are the  unaudited  balance  sheet of EDnet,  Inc.  and
Internet Worldwide Business Solutions as of the quarter ended March 31, 1997 and
income statements and statements of cash flows for the interim period up to such
date, and income  statements for the most recent fiscal quarter,  in the form of
the Company's Form 10-QSB, as filed with the Commission on May 15, 1997.

                                       32.

<PAGE>



                                   EDnet, INC.


                               -------------------









                    REPORTS ON AUDITS OF FINANCIAL STATEMENTS
                         as of June 30, 1996 and for the
                       years ended June 30, 1995 and 1996











<PAGE>



                                   EDnet, Inc.



                               ------------------




                                 C O N T E N T S







                                                                          Page
Report of Independent Accountants                                          1

Consolidated Balance Sheet                                                 2

Consolidated Statements of Operations                                      3

Consolidated Statements of Stockholders' Equity                            4

Consolidated Statements of Cash Flows                                      5

Notes to Consolidated Financial Statements                                6-20






<PAGE>
                              Coopers & Lybrand LLP

Coopers                                               

& Lybrand                                  a professional services firm




                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors of EDnet, Inc.

We have audited the accompanying  consolidated  balance sheet of EDnet, Inc. and
subsidiaries  as of June 30, 1996 and the  related  consolidated  statements  of
income,  stockholders'  equity, and cash flows for the years ended June 30, 1995
and 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting  principles used and the significant  estimates made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of EDnet, Inc. and
subsidiaries  as of  June  30,  1996  and  the  consolidated  results  of  their
operations  and their cash flows for the years ended June 30, 1995 and 1996,  in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net working capital  deficiency that raise substantial doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described in Note 1. The  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.




COOPERS & LYBRAND LLP
/S/ COOPERS & LYBRAND LLP
San Francisco, California
October 21, 1996

<PAGE>
<TABLE>
                                                  EDnet, Inc.

                                          CONSOLIDATED BALANCE SHEET

                                                 June 30, 1996

                                                 -------------
<CAPTION>

                                                 ASSETS
<S>                                                                                            <C>   
Current assets:
   Cash                                                                                        $   186,875
   Restricted cash                                                                                  35,000
   Accounts receivable, net of allowance for doubtful accounts of $33,936                          478,076
   Inventories                                                                                     147,409
   Other current assets                                                                             14,298
                                                                                               -----------
            Total current assets                                                                   861,658

Property and equipment, net                                                                        488,943
Goodwill, net                                                                                    1,088,568
Other assets                                                                                        79,342
                                                                                               -----------
                                                                                               $ 2,518,511
                                                                                               ===========
                               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                            $   659,709
   Accrued expenses                                                                                390,002
   Deferred revenue                                                                                 69,623
   Line of credit                                                                                   16,638
   Notes payable                                                                                   990,991
   Current portion of capital lease obligations                                                     24,493
                                                                                               -----------
            Total current liabilities                                                            2,151,456

Capital lease obligations                                                                           43,622
                                                                                               -----------
               Total liabilities                                                                 2,195,078
                                                                                               -----------
Stockholders' equity:
   Common stock; $0.001 par value; 50,000,000 shares authorized; 
          4,468,322 shares issued and outstanding                                                    4,468
   Additional paid-in capital                                                                    2,758,644
   Accumulated deficit                                                                          (2,439,679)
                                                                                               -----------

               Total stockholders' equity                                                          323,433
                                                                                               -----------

                                                                                               $ 2,518,511
                                                                                               ===========

<FN>
            The accompanying notes are an integral part of these consolidated financial statements.

</FN>

                                                           2
</TABLE>
<PAGE>



                                   EDnet, Inc.


                      CONSOLIDATED STATEMENTS OF OPERATIONS

                   for the years ended June 30, 1995 and 1996

                                  -------------


                                                         1995            1996
Revenues:
   Equipment sales                                   $   351,210    $ 1,308,646
   Installation and monthly fees                         340,603        404,976
   Usage fees                                            471,962        637,262
   Other fees                                             89,561        185,374
                                                     -----------    -----------
                                                       1,253,336      2,536,258

Cost of sales                                          1,026,867      2,126,741
                                                     -----------    -----------

            Gross profit                                 226,469        409,517

Sales and marketing                                      320,803        995,917
Operating expenses                                       302,377        532,081
                                                     -----------    -----------

            Loss from operations                        (396,711)    (1,118,481)

Other income (expenses):
   Interest income                                          --              238
   Interest expense                                      (28,898)       (34,560)
   Gain on sale of equipment                              32,086           --
                                                     -----------    -----------

            Total other income (expense), net              3,188        (34,322)

            Loss before provision for income taxes      (393,523)    (1,152,803)

Income taxes                                                 800          1,600
                                                     -----------    -----------

               Net loss                              $  (394,323)   $(1,154,403)
                                                     ===========    ===========

Net loss per share                                   $     (0.35)   $     (0.36)
                                                     ===========    ===========


                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       3
<PAGE>


<TABLE>

                                                         EDnet, Inc.

                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                          for the years ended June 30, 1995 and 1996


                                                      -----------------

<CAPTION>
                                                         Common Stock             Additional
                                                     -------------------------     Paid-In       Accumulated
                                                     Shares             Amount     Capital         Deficit          Total
                                                     ------             ------     -------         -------          -----

<S>                                                 <C>           <C>           <C>            <C>             <C>          
Beginning balance, restated for APO merger,
  July 1, 1994                                       1,124,310     $     1,124   $   672,268    $   (890,953)   $  (217,561) 

Net loss                                                  --              --            --          (394,323)      (394,323)
                                                     ---------     -----------   -----------    ------------    -----------  
                                                                                                
Balance, June 30, 1995                               1,124,310           1,124       672,268      (1,285,276)      (611,884)
                                                                                                
Shares issued in lieu of payroll                       395,228             395        50,607            --           51,002
Shares issued for APO merger                           747,500             748         3,527            --            4,275
Shares issued under Regulation D offering            1,500,000           1,500       996,000            --          997,500
Shares issued pursuant to consulting agreement         390,000             390       413,985            --          414,375
Shares issued for acquisition of IBS                   311,284             311       622,257            --          622,568
Net loss                                                  --              --            --        (1,154,403)    (1,154,403)
                                                     ---------     -----------   -----------    ------------    -----------  
                                                                                                
Ending balance, June 30, 1996                        4,468,322     $     4,468   $ 2,758,644     $(2,439,679)   $   323,433
                                                     =========     ===========   ===========     ===========    ===========
                                                                                                
                                                                                                
<FN>

                   The accompanying notes are an integral part of these consolidated financial statements.

</FN>
</TABLE>
                                                              4
<PAGE>
<TABLE>
                                                EDnet, Inc.

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 for the years ended June 30, 1995 and 1996

                                             ----------------
<CAPTION>
                                                                                   1995           1996
<S>                                                                            <C>            <C>         
Cash flows from operating activities:
   Net loss                                                                    $  (394,323)   $(1,154,403)
   Adjustments to reconcile net loss to cash used in operating activities:
      Depreciation and amortization                                                107,385        136,823
      Gain on sale of fixed assets                                                 (32,086)          --
      Provision for doubtful accounts                                                9,383          6,142
      Noncash compensation expenses                                                   --          465,377
      (Increase) decrease in assets, net of effects of IBS acquisition:
        Accounts receivable                                                       (121,648)      (163,237)
        Inventories                                                                   --         (147,409)
        Prepaid expenses                                                            (1,800)       (10,301)
        Other assets                                                                 5,128        (62,543)

      Increase (decrease) in liabilities, net of effects of IBS acquisition:
        Accounts payable                                                            40,897         92,297
        Accrued expenses                                                            40,247        (14,504)
        Deferred revenue                                                           158,814       (161,078)
                                                                               -----------    ----------- 

          Net cash used in operating activities                                   (188,003)    (1,012,836)
                                                                               -----------    ----------- 

Cash flows from investing activities:
   Purchase of property and equipment                                              (32,640)       (81,638)
   Cash from the acquisition of IBS, net of cash paid                                 --          113,814
   Proceeds from the sale of assets                                                 72,908           --
                                                                               -----------    ----------- 

          Net cash provided by investing activities                                 40,268         32,176
                                                                               -----------    ----------- 

Cash flows from financing activities:
   Principal payments on long-term debt                                           (104,743)      (277,825)
   Payments on capital leases                                                         (297)        (8,577)
   Issuance of shares under Regulation D                                              --          997,500
   Proceeds from borrowings                                                        253,305        400,001
   Subscribed shares                                                                  --           35,000
   Restricted cash                                                                    --          (35,000)
                                                                               -----------    ----------- 

          Net cash provided by financing activities                                148,265      1,111,099
                                                                               -----------    ----------- 

             Net increase in cash                                                      530        130,439

Cash at beginning of year                                                           55,906         56,436
                                                                               -----------    ----------- 

Cash at end of year                                                            $    56,436    $   186,875
                                                                               ===========    ===========

Supplemental disclosure of cash flow information:

   Cash paid during the year for interest                                      $    24,050    $    14,232
                                                                               ===========    ===========

   Cash paid during the year for taxes                                                 800    $      --
                                                                               ===========    ===========
<FN>

          The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                     5
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


1.  The Company:

         Summary of Business:

         EDnet, Inc. (the Company), a Colorado corporation, and its subsidiaries
         develop and market integrated  systems for the delivery,  storage,  and
         management   of   professional-quality   digital   communications   for
         media-based applications,  including audio and video production for the
         U. S. entertainment industry. The Company,  through strategic alliances
         with long-distance  carriers,  regional telephone companies,  satellite
         operators,  and independent fiber optic  telecommunications  providers,
         has  established a worldwide  network that enables the exchange of high
         quality audio, video, multimedia, and data communications.  The Company
         provides  engineering  services  and   application-specific   technical
         advice,  audio,  video, and networking hardware and software as part of
         its   business.   Additionally,   through  one  of  its  wholly   owned
         subsidiaries,  the Company  provides  Internet web site development and
         hosting  services,   utilizing   proprietary  software,  to  businesses
         conducting Internet commerce.

         Organization:

         The  Company's  principal  subsidiary,  Entertainment  Digital  Network
         (EDN), was originally incorporated in the state of Nevada in June 1992.
         In January 1993,  EDN was  reincorporated  in the state of  California.
         During September and October of 1995, EDN's stockholders exchanged 100%
         of their shares of common stock for 1,519,538 shares of common stock of
         AP Office  Equipment  (APO), a public company with no operations and no
         significant assets or liabilities.  At the time of the exchange, APO, a
         Colorado  corporation  that was  incorporated  in May 1994, had 747,500
         shares of common stock  outstanding.  Concurrently,  APO sold 1,500,000
         shares of common stock to a group of investors for $.665 per share. APO
         then changed its name to EDnet,  Inc.  EDN became a  subsidiary  of the
         Company as a result of this transaction.  For accounting purposes, this
         transaction has been treated as a recapitalization of EDN,  recognizing
         the  issuance  of  shares of  common  stock  for the net  assets of the
         Company.  The historical financial statements prior to this transaction
         are those of EDN.


                                    Continued

                                       6
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


1.    The Company, continued:

         Acquisition of Internet Worldwide Business Solutions:

         On June 24, 1996, the Company  acquired all the  outstanding  shares of
         common  stock  of  Internet  Worldwide  Business  Solutions  (IBS) in a
         business combination  accounted for as a purchase.  IBS is primarily an
         Internet service  provider  specializing in the development and hosting
         of web sites.  The  results of  operations  of IBS are  included in the
         accompanying  financial  statements since the date of acquisition.  The
         purchase price of $1,162,568  included  311,284 shares of the Company's
         common stock,  notes payable in the aggregate  amount of $500,000 (Note
         5) and  $40,000  of  acquisition  related  costs.  The  purchase  price
         exceeded the estimated fair value of the net tangible  assets of IBS by
         $1,088,568.  The excess is reflected  as goodwill on the balance  sheet
         and is being amortized using the straight-line  method over a five-year
         period.

         The assets and liabilities purchased in connection with the acquisition
         were as follows:

                Current assets                            $ 219,683  
                Property, plant and equipment, net           90,136
                Other assets                                  2,767
                Current liabilities                        (150,949)
                Note payable to EDnet                       (25,000)
                Deferred revenues                           (62,637)
                                                          ---------
                Net assets acquired                       $  74,000
                                                          =========
                                                         
         In addition, the Company entered into a stock bonus plan to issue up to
         an  aggregate  of 500,000  shares of its common stock to the two former
         owners of IBS,  now  employees  of the  Company.  The plan sets certain
         threshold  levels for revenue and profit  goals to be realized in order
         for the stock to be issued.  If a threshold  for a given time period is
         exceeded,  the amount in excess shall not be added to the amount in the
         next time period or used to determine  whether that  threshold has been
         met or exceeded.  This  agreement  represents  an earn-out plan and the
         fair  market  value of any  additional  shares  issued will be added to
         goodwill when and if the goals are met.

         In  conjunction   with  the   acquisition,   under  the  terms  of  its
         nonstatutory  stock  option  plan,  options to purchase an aggregate of
         50,000  shares of common  stock of the Company  were granted to certain
         IBS employees at $1.25 per share (see Note 9).

                                    Continued

                                       7
<PAGE>


                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


1.    The Company, continued:


         Acquisition of Internet Worldwide Business Solutions, continued:
<TABLE>

         Had the  acquisition  occurred on October 1, 1995 (the  commencement of
         operations  for IBS),  the pro forma  statement of  operations  for the
         Company for the year ended June 30, 1996 would have been as follows:

<CAPTION>
                                                             Pro Forma
                                             As Stated      Adjustments     Pro Forma
                                             ---------      -----------     ---------

<S>                                         <C>            <C>            <C>        
Revenues                                    $ 2,536,258    $   480,030    $ 3,016,288
Cost of sales                                 2,126,741        258,716      2,385,457
                                            -----------    -----------    -----------

        Gross profit                            409,517        221,314        630,831

Sales and marketing                             995,917         64,679      1,060,596
General and administrative                      532,081        271,083        803,164
                                            -----------    -----------    -----------

        (Loss) income from operations        (1,118,481)    (1,144,488)    (1,232,929)

Other expenses, net                              34,322            832         35,154

        (Loss) income before income taxes    (1,152,803)    (1,152,800)    (1,268,083)

Income taxes                                      1,600         10,335         11,935
                                            -----------    -----------    -----------

          Net (loss) income                 $(1,154,403)   $(1,256,155)   $(1,280,018)
                                            ===========    ===========    =========== 

          Net (loss) per share              $     (0.36)                  $     (0.37)
                                            ===========                   =========== 
</TABLE>


         Going Concern:

         The Company  and its  subsidiaries  have not been able to generate  any
         operating  profit since  inception.  Through June 30, 1996, the Company
         and its subsidiaries  have aggregated  losses of $2,439,679 and current
         liabilities  exceed current  assets by  $1,289,798.  Subsequent to year
         end, the Company obtained additional funding as described in Note 13.

         The Company's  management is  attempting to raise  additional  funds to
         fully develop its core business products.  The Company's  management is
         attempting to raise additional funds to fully develop its core business
         products  and manage its cash  outflows by engaging in various  private
         placement  issuances,  extending  its  Senior  Secured  Notes  to delay
         short-term  cash  requirements,   and  pursuing  aggressive  collection
         efforts of its current accounts  receivable  balances.  However, if the
         Company cannot raise  additional  funds,  it may not have the financial
         resources to continue as a going concern.  The financial  statements do
         not contain any adjustments that may be needed if the Company is unable
         to continue as a going concern.

                                    Continued

                                       8
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


2.    Summary of Significant Accounting Policies:

         Consolidation:

         The  consolidated  financial  statements  include  the  accounts of the
         Company's wholly owned subsidiaries EDN and IBS. Material inter-company
         transactions and balances have been eliminated.

         Revenue Recognition:

         A  significant  component  of revenues  relate to the sale of equipment
         which is recognized when the equipment is installed.  Installation fees
         are recognized when the  installation has been completed and usage fees
         are  recognized  over the  period  the  equipment  is used based on the
         relative usage level. Deferred revenues represent billings in excess of
         revenue recognized.

         Restricted Cash:

         Restricted  cash  represents  the  funds  received  by the  Company  in
         conjunction  with its  Regulation  D  offering  (see  Note 13) prior to
         reaching the minimum level of investment for usage of funds.

         Allowance for Doubtful Accounts:

         Bad debts are  provided on the  allowance  method  based on  historical
         experience  and   management's   evaluation  of  outstanding   accounts
         receivable.

         Inventories:

         Inventories  are valued at the lower of cost or market  with cost being
         determined on the first-in, first-out basis.

         Property and Equipment and Leasehold Improvements:

         Property and equipment are carried at cost and are  depreciated  on the
         straight-line basis over their estimated useful lives, which range from
         five to seven years. The costs of leasehold  improvements are amortized
         over the lesser of the length of the  related  leases or the  estimated
         useful lives of the assets.  Expenditures  for improvement or expansion
         of property and equipment are capitalized.  Repairs and maintenance are
         charged to expense as  incurred.  When the assets are sold or  retired,
         their cost and related  accumulated  depreciation  are removed from the
         accounts with the resulting  gain or loss reflected in the statement of
         operations.

                                    Continued

                                       9
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


2.    Summary of Significant Accounting Policies, continued:

         Goodwill:

         Goodwill is being  amortized  using the  straight-line  method over the
         estimated useful life of five years. The Company evaluates the recovery
         of its  goodwill  by  comparing  the  aggregate  estimated  cash  flows
         generated by those assets with their  carrying  value.  If the carrying
         value exceeds the aggregate cash flow amount, goodwill would be reduced
         accordingly.

         Income Taxes:

         The  Company  accounts  for income  taxes using the  liability  method.
         Deferred income tax assets and  liabilities  are computed  annually for
         differences between the financial reporting and tax bases of assets and
         liabilities  that will result in taxable or  deductible  amounts in the
         future based on enacted tax laws and rates applicable to the periods in
         which the differences are expected to affect taxable income.  Valuation
         allowances are established when necessary to reduce deferred tax assets
         to the amount expected to be realized.

         Loss Per Share:

         Loss per share has been calculated using the weighted average number of
         shares  outstanding  for the period,  which were 1,124,310 for 1995 and
         3,181,350  for  1996.  Common  stock  equivalents  (stock  options  and
         warrants)  have been  excluded  from the  calculation  because they are
         anti-dilutive.

         Use of Estimates:

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and assumptions  that affect certain  reported amounts and disclosures.
         Accordingly, actual results could differ from those estimates.

         Recent Accounting Pronouncements:

         During October 1995, the financial  Accounting  Standards  Board issued
         Statement  No.  123  (SFAS  No.  123),   Accounting   for   Stock-Based
         Compensation, which establishes a fair value based method of accounting
         for stock-based  compensation plans. The Company is currently following
         the requirements of APB Opinion No. 25,  Accounting for Stock Issued to
         Employees.  The Company  plans to adopt SFAS No. 123 during fiscal year
         1997 utilizing the disclosure alternative.

         In March 1995, the Statement of Financial Accounting Standards No. 121,
         Accounting for the  Impairment of Long-Lived  assets and for Long-Lived
         Assets to Be Disposed Of,  (SFAS 121) was issued and is  effective  for
         the  Company's  1997  fiscal  year.  SFAS  121  establishes  accounting
         standards for the impairment of long-lived assets, certain identifiable
         intangibles,  and goodwill  related to those assets to be held and used
         for  long-lived  assets 
                                    Continued

                                       10
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


         and certain  identifiable  intangibles to be disposed.  The Company has
         adopted  this  standard  during  fiscal year 1996 with no impact on the
         financial  statements.  The  Company's  policy  related  to  evaluating
         long-lived assets is included in the goodwill policy disclosures above.


3.    Accounts Receivable and Allowance for Doubtful Accounts:

      Accounts receivable at June 30, 1996 comprise the following:



         Current trade                                       $ 469,028  
         Employee                                                3,372
         Rebillable charges                                     39,612
                                                             ---------
        
                                                               512,012
        
         Less allowance for doubtful accounts                  (33,936)
                                                             ---------
        
                Total                                        $ 478,076
                                                             =========
        
      Allowances are made as a percentage of sales adjusted  annually based upon
      review of the  individual  accounts  receivable.  Accounts are written off
      when deemed to be worthless. Total bad debt expense was $16,603 and $6,461
      for the years ended June 30, 1995 and 1996, respectively.


4.    Property and Equipment:

      Property and equipment are  summarized by major  category as follows as of
      June 30, 1996:


             Network and related equipment                   $ 831,635  
             Furniture and fixtures                             15,421
             Computer software                                  20,766
             Leasehold improvements                             15,108
                                                             ---------  
                                                               882,930
             
             Depreciation and amortization                    (393,987)
                                                             ---------  
             Net property and equipment                      $ 488,943
                                                             =========
             
      Depreciation  and  amortization  included in the  statements of operations
      amounted to $107,385  and  $136,823  for the years ended June 30, 1995 and
      1996, respectively.

      The  Company  leases some  equipment  to  customers  under terms which are
      accounted  for as operating  leases.  Under the operating  method,  rental
      revenue from leases are recognized  ratably over the life of the lease and
      the related equipment is depreciated over its estimated useful life.

                                    Continued

                                       11
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------

<TABLE>
<CAPTION>

5.    Notes Payable:

      <S>                                                                             <C>    
      Notes payable  consist  of the  following  as of June  30,  1996:  

      Notes payable  to  two  stockholders  of  $125,000  each  at 8%  interest,
            principal  and interest due 60 days  subsequent to the IBS purchase,
            collateralized by IBS shares of common stock acquired by the Company
            (see Note 1). The note and  accrued  interest  was repaid in full in
            August, 1996.                                                             $ 250,000

      Notes payable  to  two  stockholders  of  $125,000  each  at 8%  interest,
            principal  and  accrued  interest  due  the  earlier  of  12  months
            subsequent  to the IBS  purchase  or 15 days after close of a public
            offering of common stock, uncollateralized (see Note 1).                    250,000

      Notes payable to Mr. Irawan Onggara,  a shareholder and financial advisor,
            with  original  amounts of  $250,000,  $100,000,  and  $75,000 at 7%
            interest rate,  collateralized by assets of the Company subordinated
            to equipment  covered by individual  capital  leases,  due August 8,
            1996,  October 18, 1996,  and November 20, 1996,  respectively.  The
            Company has repaid  $90,000 and has  obtained  verbal  agreement  to
            extend the due dates of the notes currently due.                            410,000

      Note  payable to Newjack, Inc., dba Waves Sound Recorders,  Inc., interest
            at  13.09%,  monthly  principal  and  interest  payments  of $1,475,
            collateralized by equipment, final maturity May, 1997.                       15,441

      Notes payable to an officer, interest at 6% per annum, uncollateralized.           24,000

      Notes payable to an officer, interest at 6% per annum, uncollateralized.           26,550
 
      Note  payable to a director, interest at 6% per annum, uncollateralized.           15,000
                                                                                      ---------
                                                                                      $ 990,991
                                                                                      =========
</TABLE>
                                                                              
      The notes  payable to officers  and director are overdue as of October 21,
      1996. Each of these  individuals has agreed not to declare a default under
      these  notes  for an  indefinite  period  and to accept  repayment  by the
      Company at a future date.

      The carrying value of these financial instruments  approximates fair value
      due to the relatively short maturity.


6.    Line of Credit:

      The Company's wholly owned  subsidiary,  IBS, has a $25,000 line of credit
      with a financial institution,  of which $16,638 was outstanding as of June
      30, 1996. The line of credit bears interest at the institutions  reference
      rate plus 5.06% (12.31% as of June 30, 1996) and is payable  monthly.  The
      line of credit expires on March 8, 1997.


                                    Continued

                                       12
<PAGE>

                                   EDNET, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------

7.    Income Taxes:

      The  provision  for income  taxes  consists  of federal  income  taxes and
      California franchise taxes payable and includes the following:

                Currently payable                        $1,600
                Deferred                                   --
                                                         ------
                      Total provision for income taxes   $1,600
                                                         ======



      A reconciliation  of the expected and reported  provision for income taxes
      follows:

                                                           For the Years Ended
                                                                June 30,
                                                           -------------------
                                                            1995     1996

        Benefit expected based on federal statutory rate     34.0%   34.0%
        State taxes, net of federal benefit                   6.1     6.1
        Nondeductible expenses                                0.1     0.2
        Valuation allowance, net                            (40.2)  (40.2)
                                                            -----   ----- 
                    Net income tax provision                  0.0%    0.1%
                                                            =====   =====

      The tax effects of significant temporary differences representing deferred
      tax assets and liabilities are as follows:


                Net operating loss carryforwards     $ 879,000
                Property and equipment                  17,000
                Other, net                               3,000
                Valuation allowance                   (899,000)
                                                     ---------
                            Net deferred tax asset        --
                                                     =========

      Due to the  uncertainty  of  realization,  a valuation  allowance has been
      provided to eliminate  the net  deferred  tax assets.  The increase in the
      valuation allowance was $420,000 in fiscal 1996.

      The  Company  has  Federal  and  California  loss  carryforwards  totaling
      approximately  $2.4  million and $1.2  million  expiring  through 2011 and
      2001,  respectively,  that may be offset against future income taxes.  The
      utilization of these net operating loss carryforwards are limited due to a
      change of ownership  as defined in the Internal  Revenue Code (see Note 1)
      in November 1995.


                                    Continued

                                       13
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


8.    Lease Commitments:


      As of June 30, 1996, the Company leases office space and certain equipment
      under various  noncancelable  capital and operating leases. Future minimum
      lease payments required under the noncancelable leases are as follows:

                                                    Operating        Capital
     Year Ending June 30,                            Leases          Leases
     --------------------                            ------          ------

             1997                                  $   200,118     $   32,498
             1998                                      164,905         26,274
             1999                                      119,961         13,824
             2000                                       92,994         10,961
             2001                                       92,994           -
          Thereafter                                   185,988           -
                                                   -----------     ----------

Total minimum lease payments                       $   856,960         83,557
                                                   ===========         

Less amount representing interest                                      15,442
                                                                   ----------
Present value of net minimum lease payments                            68,115

Less current portion                                                   24,493
                                                                   ----------
          Long-term portion                                        $   43,622
                                                                   ==========

      As  of  June  30,  1996,  the  Company  has  equipment   purchased   under
      noncancelable  capital  leases  with a cost  of  $76,990  and  accumulated
      amortization of $5,238.

      Total rental expense for all operating leases for the years ended June 30,
      1996 and 1995 amounted to $121,584 and $124,700, respectively.

      The  Company's  obligations  under its lease  for its Los  Angeles  office
      premises are guaranteed by its Chairman and Chief Executive Officer.


9.    Options and Warrants:

         Options to Key Employees and Directors:

         On  September  19, 1995,  EDN granted a total of 263,420  non-qualified
         options to certain employees and directors to purchase shares in EDN at
         $.10 per share. As a result of the  recapitalization  discussed in Note
         1,  the EDN  options  were  converted  into  options  to  purchase  the
         Company's stock at a conversion of .87495 per share for each EDN share.
         As a result,  at June 30, 1996, there were 230,479 options  outstanding
         at a price of $.11 per share.  These  options  expire on September  29,
         2000. There were no options exercised during the period.


                                    Continued

                                       14
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


9.    Options and Warrants, continued:

         Incentive Stock Options:

         On November 10,  1995,  the Company  adopted an Incentive  Stock Option
         Plan (the Plan) for certain  officers  and  executive  employees of the
         Company.  An aggregate of 500,000  shares may be issued under the terms
         of the Plan.  The  option  price  shall be  determined  by the Board of
         Directors  and the  Company's  Compensation  Committee and shall not be
         less than 100% of the fair market value of the common stock on the date
         of grant. The period of option may not exceed ten years.

         During fiscal 1996,  the Company  entered into an employment  agreement
         with both its Chairman and President. Under the terms of the agreement,
         each  officer  may  purchase  up to 250,000  shares at a price of $1.25
         under the terms outlined below:

         1)  On January 1, 1997, the option shall become exercisable for a total
             of 100,000 shares of the Company's common stock,  exercisable for a
             five-year  period,  if for any prior rolling 12-month period during
             the period from  September 1, 1995 through  December 31, 1996,  the
             Company has sales of at least  $5,000,000  or income  before income
             taxes of at least $500,000.

         2)  On January 1, 1998, the option shall become exercisable for a total
             of 100,000 shares of the Company's common stock,  exercisable for a
             five-year  period,  if for any prior rolling 12-month period during
             the period from  September 1, 1995 through  December 31, 1997,  the
             Company has sales of at least  $8,500,000  or income  before income
             taxes of at least $1,500,000.

         3)  On January 1, 1999, the option shall become exercisable for a total
             of 50,000 shares of the Company's  common stock,  exercisable for a
             five-year  period,  if for any prior rolling 12-month period during
             the period from  September 1, 1995 through  December 31, 1998,  the
             Company has sales of at least  $15,000,000  or income before income
             taxes of at least $3,000,000.

         Each of the above  installments may be exercised by the delivery by the
         employee to the Company of a three-year  promissory note payable to the
         Company, with interest to be determined at date of issuance. No further
         options may be issued under this Plan.


                                    Continued

                                       15
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


9.    Options and Warrants, continued:

         Nonstatutory Stock Option Plan:

         On November 10, 1995, the Company  adopted a nonstatutory  stock option
         plan whereby 565,000 shares of the Company's  common stock was reserved
         for issuance.  Under the terms of the plan, the options must be granted
         prior to  December  31,  1996;  the price  shall be  determined  by the
         Company's  Compensation  Committee (CC); the period of option shall not
         exceed  five years from the date of grant;  and the option must be paid
         in cash when exercised unless a payment plan is authorized by the CC.

         As of June 30, 1996,  222,000 options had been granted with an exercise
         price of $1.25 per share,  of which 100,000 shares have to be exercised
         by November 30, 1997 and 100,000 by November 30, 1998.

         In  addition,  in  connection  with the IBS  acquisition  (see Note 1),
         50,000  options were granted to IBS employees with an exercise price of
         $1.25 and a three-year vesting term.

         EDN Stockholders' Warrants:

         As a result of the  recapitalization  discussed in Note 1,  outstanding
         warrants to purchase an aggregate of 347,343 shares of EDN common stock
         at $2.625 per share were  converted  to 303,908  warrants  to  purchase
         shares of the  Company's  common  stock at a price of $3.00 per  share.
         These warrants became  exercisable on May 1, 1996 and expire on October
         31, 1996.

         Investment Banking Warrants:

         In  May  1996,   the  Company   entered  into  an  investment   banking
         relationship with Morgan Fuller Capital Group (Morgan). Under the terms
         of the  agreement,  Morgan  will  provide the  Company  with  financial
         advisor  services as well as arranging for equity and debt funding.  As
         part of  Morgan's  compensation,  they  received  250,000  warrants  to
         purchase  shares of the Company's  common stock at a price of $6.37 per
         share to be exercised prior to May 1999.


                                    Continued

                                       16
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------



9.    Options and Warrants, continued:

      A recap of the options and warrants  outstanding as of June 30, 1996 is as
      follows:

                                                   Quantity
                                        Price      Reserved        Outstanding
                                        -----      --------        -----------

Employee EDN options converted         $0.11          230,479          230,479
Employee incentive options             $1.25          500,000          500,000
Nonstatutory options                   $1.25          565,000          272,000
                                                    ---------        ---------
        Total options                               1,295,479        1,002,479
                                                    =========        =========

Employee warrants                      $3.00          303,908          303,908
Morgan warrants                        $6.37          250,000          250,000
                                                    ---------        ---------
        Total warrants                                553,908          553,908
                                                    =========        =========



      Subsequent to June 30, 1996,  additional warrants were issued as described
      in Note 13. On August 26, 1996, the Board of Directors issued, pursuant to
      the nonstatutory  stock option plan, 100,000 options to purchase shares of
      common stock at a price of $1.25 per share vesting over three years.

      Pursuant to a Consulting  Agreement  dated July 31, 1995,  between EDN and
      Century Financial Partners, Inc. (CFP), the Company was obligated to grant
      an option to purchase 1,000,000 shares of common stock at $1.25 per share.
      The Company has had verbal  discussions  with CFP with respect to reducing
      the number of shares of common  stock  subject  to such  option to 805,000
      shares.


10.   Employment Contracts:

      The Company has entered into  employment  contracts with both its Chairman
      and  President  whereby  each  will  receive a  minimum  annual  salary of
      $125,000  until  February  28, 1996  adjusted to market  rates at March 1,
      1996, and annually thereafter, and incentive stock options as described in
      Note 9. These agreements cover the period through December 31, 2000.

      IBS has entered into  employment  contracts  with its  President and Chief
      Executive Officer that extend through June 30, 1999. The contracts provide
      for  a  minimum  annual   salary,   adjusted  at  the  discretion  of  the
      Compensation  Committee  of the Board of  Directors.  At June 30, 1996 the
      commitment under each contract was $300,000.

                                    Continued

                                       17
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


11.   Concentration of Credit Risk:

      The Company and its subsidiaries maintain cash in bank deposit accounts at
      accredited financial institutions.  The balances in these accounts may, at
      times, exceed federally insured limits.


12.   Supplemental Disclosures of Noncash Investing and Financing Activities:

      The following  noncash activity occurred during the periods under audit as
      follows:

      o  The  Company  entered  into  capital  leases for  office  and  computer
         equipment  in the amount of $12,901  and  $66,408,  for the years ended
         June 30, 1995 and 1996, respectively.

      o  During  fiscal year 1996,  the  Company  issued  395,228  shares of its
         common  stock to  officers  and  employees  of the  Company  in lieu of
         payroll.

      o  During the fiscal year 1996,  the Company  issued 295,228 shares of its
         common  stock to  officers  and  employees  of the  Company  in lieu of
         payroll  resulting  in a noncash  compensation  charge of $51,002.  The
         shares were valued using an  estimation  of the fair value of the stock
         by management and the Board of Directors.

      o  In  connection  with the merger with APO (Note 1) in 1995,  the Company
         issued 747,500 shares of common stock in exchange for the net assets of
         APO totaling $4,275.

      o  In  connection  with the merger with APO (Note 1) in 1995,  the Company
         issued 747,500 shares of common stock in exchange for the net assets of
         APO  totaling   $4,275.   The   transaction  has  been  recorded  as  a
         recapitalization with the issuance of stock for assets and no goodwill.

      o  The  Company   issued   390,000  of  its  shares  of  common  stock  in
         consideration  for  consulting  services  performed  during fiscal year
         1996. At the time of issuance these shares were valued at $414,375.

      o  The  Company   issued   290,000  of  its  shares  of  common  stock  in
         consideration  for  consulting  services  performed  during fiscal year
         1996.  At the time of issuance  these shares were valued at the closing
         bid  price  on  the  date  of  issuance   discounted   due  to  certain
         restrictions  regarding  the lack of  liquidity  in the near term.  The
         total amount of $414,375 was charged to compensation expense.

      o  In  conjunction  with the  acquisition  of IBS during  fiscal year 1996
         (Note 1), the Company issued notes payable  totaling  $500,000 (Note 5)
         and 311,284 shares of common stock valued at $622,257.

                                    Continued

                                       18
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


      o  In  conjunction  with the  acquisition  of IBS during  fiscal year 1996
         (Note 1), the Company issued notes payable  totaling  $500,000 (Note 5)
         and 311,284 shares of common stock valued at $622,257.  The shares were
         valued by comparing  the closing  price of common  shares  concurrently
         being issued under a  Regulation D offering  which  included one common
         share and one warrant and subsequently  discounted due to the fact that
         the liquidity of the shares was restricted to a future date.


13.   Subsequent Events:

         Senior Secured Promissory Notes:

         Subsequent  to June 30,  1996,  the  Company  has  borrowed  a total of
         $1,000,000 under three senior collateralized promissory notes, arranged
         by its financial advisor, Morgan, as follows:


     Date                 Amount         Rate                  Due Date

July 5, 1996          $     500,000       14%             November 15, 1996
August 9, 1996              200,000       14%             November 15, 1996
September 11, 1996          300,000       14%             November 15, 1996
                      -------------
                      $   1,000,000
                      =============

         Interest  on these  notes is  payable  on a  quarterly  basis  starting
         September 30, 1996.




13.   Subsequent Events, continued:

         Senior Secured Promissory Notes, continued:

         Subsequent to November 15, 1996,  the notes may be converted  into term
         notes  with  principal  payments  for each note of  $100,000  per month
         beginning  December 1, 1996.  In addition,  the  interest  rate will be
         increased  from  14%  to  18%.  The  notes  are  collateralized  by the
         Company's assets.

         In  connection  with  the  senior  secured  notes  and  selling  of the
         participations, investors and Morgan received:

         -- 58,824 warrants  (39,216 warrants to Morgan) at a price of $4.25 per
            share to be exercised prior to July 4, 1999.

         -- 67,806 warrants (45,205 warrants to Morgan) at a price of $3.687 per
            share to be  exercised  prior to August 8,  1999 and  September  10,
            1999, respectively, for debt placement services.

                                    Continued

                                       19
<PAGE>

                                   EDnet, Inc.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                -----------------


         If the Company elects not to complete additional financing with Morgan,
         a cash fee of $140,000  and  $200,000 in warrants at an exercise  price
         equal to the lesser of (i) $3.00;  or (ii) sixty percent of the average
         closing bid price of the common stock during a consecutive ten (10) day
         period  immediately  preceding the issuance date of the warrants,  will
         become due and payable to Morgan.

         Regulation D Equity Placement:

         The Company has  offered up to a maximum of  $3,000,000  in units (each
         unit  consists of one share of its common  stock and one  warrant) at a
         price per unit of the lesser of $3.00 or the average  closing bid price
         of its common  stock during a  consecutive  30-day  period  immediately
         preceding the termination date less 30%. The original  termination date
         of the  offering  was in August,  1996 but it has been  extended and is
         currently  ongoing as of October  21,  1996.  Each share of stock comes
         with a warrant to  purchase  common  stock  through  July 31, 1999 at a
         price of the lesser of $4.75 or the average  closing bid price during a
         consecutive-  30-day period immediately  preceding the termination date
         as explained above. As of October 21, 1996 the Company had sold 190,000
         units at a price of $3.00,  with attached  warrants at a price of $4.75
         per share. The unit purchase price and the related warrant price may be
         adjusted at the time of the closing  depending  on the average  trading
         price in the period described above.


                                       20

<PAGE>




                      INTERNET WORLDWIDE BUSINESS SOLUTIONS



                                -----------------










                     REPORT ON AUDIT OF FINANCIAL STATEMENTS
                         as of June 24, 1996 and for the
                  period from October 1, 1995 to June 24, 1996





<PAGE>




                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                                -----------------



                                 C O N T E N T S





                                                                       Page



Report of Independent Accountants                                       1


Balance Sheet                                                           2


Statement of Operations                                                 3


Statement of Changes in Stockholders' Equity                            4


Statement of Cash Flows                                                 5


Notes to Financial Statements                                          6-8



<PAGE>
                              Coopers & Lybrand LLP

Coopers                                               

& Lybrand                                  a professional services firm






                        REPORT OF INDEPENDENT ACCOUNTANTS






To the Board of Directors of EDnet, Inc.

We have audited the accompanying  balance sheet of Internet  Worldwide  Business
Solutions as of June 24, 1996, and the related statements of income,  changes in
stockholders' equity, and cash flows for the period from October 1, 1995 to June
24, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting  principles used and the significant  estimates made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

As  discussed  in Note 1 to the  financial  statements,  on June 24,  1996,  the
Company was acquired by EDnet, Inc.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Internet  Worldwide Business
Solutions as of June 24, 1996,  and the results of its  operations  and its cash
flows for the period from October 1, 1995 to June 24, 1996, in  conformity  with
generally accepted accounting principles.



COOPERS & LYBRAND LLP
/S/ COOPERS & LYBRAND LLP
San Francisco, California
October 21, 1996



<PAGE>

<TABLE>

                     INTERNET WORLDWIDE BUSINESS SOLUTIONS

                                  BALANCE SHEET

                                  June 24, 1996


                                -----------------


<CAPTION>


                                               ASSETS
<S>                                                                                       <C>  
Current assets:
   Cash                                                                                   $153,814 
   Accounts receivable, net of allowance for doubtful accounts of $13,911                   51,640
   Other current assets                                                                     14,229
                                                                                          -------- 
            Total current assets                                                           219,683
                                                                                          
Property and equipment, net                                                                 90,136
                                                                                          
Other assets                                                                                 2,767
                                                                                          -------- 
                                                                                          $312,856
                                                                                          ========
                                                                                          
                                LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                          
Current liabilities:                                                                      
   Accounts payable                                                                       $ 47,777
   Accrued expenses                                                                         86,534
   Line of credit                                                                           16,638
   Note payable to EDnet, Inc.                                                              25,000
   Deferred revenue                                                                         62,637
                                                                                          -------- 
            Total liabilities                                                              238,536
                                                                                          -------- 
Stockholders' equity:                                                                     
   Common stock; no par value; 100,000 shares authorized; 50,000 shares                   
          issued and outstanding                                                          
                                                                                            36,330
   Retained earnings                                                                        37,670
                                                                                          -------- 
            Total stockholders' equity                                                      74,000
                                                                                          -------- 
                                                                                          $312,586
                                                                                          ========
<FN>
                                                                                          
             The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                       2
<PAGE>



                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                             STATEMENT OF OPERATIONS

            for the period from October 1, 1995 through June 24, 1996



                                -----------------




Revenues                                                         $480,030 
Cost of  revenues                                                 258,716
                                                                 -------- 
            Gross profit                                          221,314
                                                                 -------- 
Sales and marketing                                                64,679
General and administrative                                        107,798
                                                                 -------- 
            Income from operations                                 48,837
                                                                
Interest expense                                                      832
                                                                 -------- 
            Income before provision for income taxes               48,005
                                                                
Provision for income taxes                                         10,335
                                                                 -------- 
               Net income                                        $ 37,670
                                                                 ========
                                                                
   The accompanying notes are an integral part of these financial statements.
                                                
                                        3
<PAGE>

<TABLE>

                      INTERNET WORLDWIDE BUSINESS SOLUTIONS

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

            for the period from October 1, 1995 through June 24, 1996



                                -----------------
<CAPTION>

                                                                                                        Total
                                                                                                        Stock-
                                                                          Common        Retained       holders'
                                                                          Stock         Earnings        Equity
                                                                         -------        -------        -------

<S>                                                                      <C>           <C>            <C>   
Balance, October 1, 1995                                                    --             --             --    
                                                                                                     
Issuance of common stock (50,000 shares)                                 $36,330           --          $36,330
                                                                                                     
Net income for the period from October 1, 1995 through June 24, 1996                                 
                                                                                                     
                                                                            --          $37,670         37,670
                                                                         -------        -------        -------
                                                                                                     
Balance, June 24, 1996                                                   $36,330        $37,670        $74,000
                                                                         =======        =======        =======
                                                                                                     
<FN>
                                                                                                     
                                                                                                        
                   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                                       4
<PAGE>
<TABLE>

                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                             STATEMENT OF CASH FLOWS

            for the period from October 1, 1995 through June 24, 1996


                                -----------------


<CAPTION>
<S>                                                                                <C>
Cash flows from operating activities:
   Net income                                                                      $  37,670
   Adjustments to reconcile net income to cash provided by operating activities:
      Depreciation and amortization                                                   11,509
      Bad debt expense                                                                13,911
      (Increase) decrease in assets:
         Accounts receivable                                                         (55,205)
         Other current assets                                                        (14,229)
         Other assets                                                                 (2,767)
      Increase (decrease) in liabilities:
         Accounts payable                                                             47,777
         Accrued expenses                                                             80,296
         Deferred revenue                                                             62,637
                                                                                   ---------
            Net cash provided by operating activities                                181,599
                                                                                   ---------
Cash flows from investing activities - purchase of property and equipment            (85,900)
                                                                                   ---------
Cash flows from financing activities:
   Borrowings under line of credit                                                    16,638
   Proceeds from note payable                                                         25,000
   Proceeds from issuance of common stock                                             16,477
                                                                                   ---------
            Net cash provided by financing activities                                 58,115
                                                                                   ---------
               Net increase in cash                                                  153,814

Cash at beginning of period                                                             --
                                                                                   ---------
Cash at end of period                                                              $ 153,814
                                                                                   =========
Supplemental disclosure of cash flow information:

   Cash paid during the period for interest                                        $     832
                                                                                   =========
   Cash paid during the period for taxes                                           $  23,047
                                                                                   =========
<FN>

                                                                                                        
          The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                              5
<PAGE>

                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                          NOTES TO FINANCIAL STATEMENTS


                                -----------------



1.    The Company:

      Internet  Worldwide   Business  Solutions  (the  Company),   a  California
      corporation, is primarily an Internet service provider specializing in the
      development and hosting of web sites.

      The Company was  incorporated  on August 4, 1995 in  California;  however,
      operations  were not begun  until  October  1,  1995.  On October 1, 1995,
      certain assets and liabilities  were transferred from a partnership to the
      corporation in exchange for 50,000 shares of common stock as follows:

               Cash                                       $    16,477  
               Accounts receivable                             10,346
               Fixed assets                                    15,745
               Accrued liabilities                             (6,238)
               
      On June 24,  1996,  the Company was acquired by EDnet,  Inc.  (EDnet) in a
      business combination accounted for as a purchase.


2.    Summary of Significant Accounting Policies:

         Revenue Recognition:

         Revenues are generated from the design and development of web sites and
         for services for hosting web sites.  Revenue for design and development
         contracts is  recognized on the  percentage  of  completion  method and
         service  revenue  are  recognized  ratably  over  the  service  period.
         Deferred revenues represent billings in excess of revenue recognized.

         Property and Equipment:

         Property and equipment are carried at cost and are  depreciated  on the
         straight-line basis over their estimated useful lives, which is five to
         seven years.  Expenditures  for  improvement or expansion of electronic
         equipment  are  capitalized.  Repairs  and  maintenance  are charged to
         expense as  incurred.  When the assets are sold or retired,  their cost
         and related accumulated depreciation are removed from the accounts with
         the resulting gain or loss reflected in the income statement.

         Income Taxes:

         The  Company  accounts  for income  taxes using the  liability  method.
         Deferred income tax assets and  liabilities  are computed  annually for
         differences between the financial reporting and tax bases of assets and
         liabilities  that will result in taxable or  deductible  amounts in the
         future based on enacted tax laws and rates applicable to the periods in
         which the differences are expected to affect taxable income.  Valuation
         allowances are established when necessary to reduce deferred tax assets
         to the amount expected to be realized.

                                   Continued

                                       6
<PAGE>

                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                          NOTES TO FINANCIAL STATEMENTS


                                -----------------



2.    Summary of Significant Accounting Policies, continued:

         Use of Estimates:

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and assumptions  that affect certain  reported amounts and disclosures.
         Accordingly, actual results could differ from those estimates.


3.    Property and Equipment:

         Property and equipment are  summarized by major  category as follows as
         of June 24, 1996:


                Network equipment                      $      80,977
                Furniture and fixtures                         6,314
                Computer software                             14,354
                                                       -------------
                                                             101,645
                Depreciation and amortization                (11,509)
                                                       -------------
                Net property and equipment             $      90,136
                                                       =============


      Depreciation  and  amortization  included in the  statement of  operations
      amounted to $11,509 for the period from  October 1, 1995  through June 24,
      1996.


4.    Related Party Transactions:

      At June 24, 1996, the Company had a note payable to EDnet in the amount of
      $25,000 bearing interest at 8%, maturing on August 6, 1996.  Subsequent to
      the  acquisition  of the Company by EDnet (Note 1), the note was converted
      to an advance with no repayment terms or interest being due.


5.    Income Taxes:

      The  provision  for income taxes  consists of current taxes of $12,094 and
      deferred taxes of $(1,759).

      A reconciliation  of the expected and reported  provision for income taxes
      follows:


              Taxes using U.S. federal statutory rate          $     6,025
              State taxes, net of federal benefit                    3,173
              Impact of nondeductible expenses                       1,137
                                                               -----------
              Net income tax provision                         $    10,335
                                                               ===========
                                    Continued

                                        7
<PAGE>

                      INTERNET WORLDWIDE BUSINESS SOLUTIONS


                          NOTES TO FINANCIAL STATEMENTS


                                -----------------



5.  Income Taxes, continued:

      The tax effects of significant temporary differences representing deferred
      tax assets and liabilities are as follows:


              Bad debt allowance                  $    3,380
              Depreciation                            (1,009)
              State income taxes                        (612)
                                                  ----------
              Net deferred tax asset              $    1,759
                                                  ==========



6.    Lease Commitments:

      The Company  leases office space under a  noncancelable  operating  lease,
      expiring March 3, 1997. Future minimum lease payments under this lease for
      the year ending June 30, 1997 are $35,213.

      Rental  expense  for the  period  from  October  1, 1995 to June 24,  1996
      amounted to $25,301.


7.    Concentration of Credit Risk:

      The Company  maintains  its cash in a bank deposit  account at a financial
      institution.  The balance at times may exceed federally insured limits. At
      June 30, 1996,  the Company  exceeded the insured  limit by  approximately
      $53,000.


8.    Major Customer:

      The Company had one customer representing approximately 18% of its overall
      revenue for the period from October 1, 1995  through  June 24,  1996.  All
      other  customers  represented  less than 10% of its overall revenue during
      the same period.


9.    Line of Credit:

      The Company has a $25,000 line of credit with a financial institution,  of
      which  $16,638 was  outstanding  as of June 24,  1996.  The line of credit
      bears interest at the  institution's  reference rate plus 5.06% (12.31% as
      of June 24, 1996) and is payable  monthly.  The line of credit  expires on
      March 8,  1997.  The  carrying  value  approximates  fair value due to the
      relatively short maturity of this financial instrument.


                                       8
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-QSB


         (MARK ONE)
[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997 or


[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 000-21659


                                   EDnet, INC.

        (Exact name of small business issuer as specified in its charter)


Colorado                                                     84-1273795
--------------------------------------------------------------------------------
State or other jurisdiction                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)


One Union Street, San Francisco, California                  94111
--------------------------------------------------------------------------------
Address of principal executive offices                       (Zip Code)


Issuer's telephone number, including area code               (415) 274-8800
                                                             -------------------


         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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___.

Number of shares outstanding of the issuer's common stock as of March 31, 1997:
5,665,465

Transitional Small Business Disclosure Format (Check one):        Yes___  No_X_

<PAGE>


<TABLE>

Part I.  FINANCIAL INFORMATION


                                                            EDnet, Inc.
                                                  CONSOLIDATED STATEMENTS OF INCOME
                                     For the Three and Nine Months ended March 31, 1997 & 1996
<CAPTION>
                                                        
                                                                         Three Months                          Nine Months         
                                                                        Ended March 31                        Ended March 31       
                                                                        ( Unaudited )                         ( Unaudited )        
                                                               ------------------------------        ------------------------------
                                                                   1997               1996               1997               1996    
                                                               -----------        -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>                <C>        
Revenues:
        Equipment sales and installation                       $   192,778        $   352,299        $   834,483        $ 1,050,123
        Site development and services                              205,157               --              781,032               --   
        Access, Usage, and Hosting fees                            504,199            215,087          1,306,063            720,340
        Other fees                                                  36,718             28,257             95,357            157,439
                                                               -----------        -----------        -----------        -----------
                                                                   938,852            595,643          3,016,935          1,927,902

Cost of sales                                                      515,022            358,451          1,718,837          1,177,555
                                                               -----------        -----------        -----------        -----------

        Gross Profit                                               423,830            237,192          1,298,098            750,347



Research & Development                                              51,188               --              974,284               --   
Sales and Marketing expenses                                       232,412             11,460            670,284             19,130
General and Administrative expenses                                838,319            405,014          1,949,637          1,066,274
                                                               -----------        -----------        -----------        -----------

        Loss from operations                                      (698,089)          (179,282)        (2,296,107)          (335,057)
                                                               -----------        -----------        -----------        -----------

Other income (expense):
        Interest expense                                          (164,118)            (2,956)          (261,412)           (26,522)
        Gain on sales of fixed assets                                2,323               --                2,323               --   
                                                               -----------        -----------        -----------        -----------

        Total other income (expense), net                         (161,795)            (2,956)          (259,089)           (26,522)
                                                               -----------        -----------        -----------        -----------

        Loss before provision for income taxes                    (859,884)          (182,238)        (2,555,196)          (361,579)

Income taxes                                                         3,266               --                3,266               --   
                                                               -----------        -----------        -----------        -----------

        Net Loss                                               $  (863,150)       $  (182,238)       $(2,558,462)       $  (361,579)
                                                               ===========        ===========        ===========        =========== 

Net Loss Per Common Share                                      $     (0.17)       $     (0.08)       $     (0.54)       $     (0.16)
                                                               ===========        ===========        ===========        =========== 

Weighted Average Number                                          5,178,909          2,261,945         4,747,188           2,261,945
                                                               ===========        ===========        ===========        =========== 


<FN>

                      The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
                                                                 2
<PAGE>

<TABLE>
                                                             EDnet, Inc.
                                                     CONSOLIDATED BALANCE SHEETS
                                               As of March 31, 1997 and June 30, 1996
<CAPTION>

                                                               ASSETS
                                                                                                   3/31/97              6/30/96
                                                                                                 (Unaudited)   
                                                                                                -----------------------------------
<S>                                                                                             <C>                     <C>    
CURRENT ASSETS
        Cash                                                                                    $    58,219             $   221,875
        Accounts Receivable, net                                                                    634,758                 478,076
        Inventories                                                                                 236,235                 147,409
        Other Current Assets                                                                        768,400                  14,298
                                                                                                -----------------------------------
                TOTAL CURRENT ASSETS                                                              1,697,612                 861,658

PROPERTY AND EQUIPMENT, NET                                                                         623,951                 488,943
GOODWILL, NET                                                                                       714,996               1,088,568
OTHER ASSETS                                                                                         64,445                  79,342
                                                                                                -----------------------------------
        TOTAL ASSETS                                                                            $ 3,101,004             $ 2,518,511
                                                                                                ===================================

                                           LIABILTIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
        Accounts payable                                                                        $ 1,531,048             $   659,709
        Accrued expenses                                                                            427,037                 390,002
        Deferred revenue                                                                             17,279                  69,623
        Line of credit                                                                               34,465                  16,638
        Notes payable                                                                             1,332,122                 990,991
        Current portion of capital lease obligations                                                 36,172                  24,493
                                                                                                -----------------------------------
                TOTAL CURRENT LIABILITIES                                                         3,378,123               2,151,456

CAPITAL LEASE OBLIGATIONS-LONG TERM                                                                  23,863                  43,622
                                                                                                -----------------------------------
        TOTAL LIABILITIES                                                                         3,401,986               2,195,078


STOCKHOLDERS' EQUITY (DEFICIT)
        Common stock; par value $.001 per share
        Authorized 50,000,000 shares, 5,665,465 and
        4,468,322 shares issued and outstanding as of
        March 31, 1997 and June 30,1996 respectively                                                  5,665                   4,468

        Preferred Stock; par value $1,000 per share
        Authorized 1,750 shares, 150 shares issued and
        outstanding as of March 31, 1997                                                            163,352                    --   

        Common stock warrants                                                                       222,920
        Capital paid in excess of par value of common stock                                       4,351,032               2,758,644

        Accumulated Deficit                                                                      (5,043,951)             (2,439,679)
                                                                                                -----------------------------------
        TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                                       (300,982)                323,433

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                    $ 3,101,004             $ 2,518,511
                                                                                                ===================================

<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                                 3


<PAGE>

<TABLE>
                                                            EDnet, Inc.
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         for the Nine Months ended March 31, 1997 and 1996
                                                                                
<CAPTION>
                                                                                                    3/31/97                3/31/96 
                                                                                                  (Unaudited)           (Unaudited)
                                                                                                 ----------------------------------
<S>                                                                                              <C>                    <C>         
Cash flows from operating activities:                                                                           
                                                                                
        Net loss                                                                                 $(2,558,462)           $  (361,579)

        Adjustments to reconcile net loss to
        cash used in operating activities:

                Depreciation and amortization                                                        307,771                 73,109
                Noncash compensation expenses                                                        222,541                   --   
                Decrease (increase) in other current assets                                           12,539                 (8,804)
                Increase in accounts receivable                                                     (156,682)              (158,935)
                Increase in inventory                                                                (88,826)              (252,302)
                Increase (decrease) in accounts payable
                        and accrued expenses                                                         926,202               (141,485)
                Decrease in deferred revenue                                                         (52,344)              (124,477)
                                                                                                 ----------------------------------

                        Net cash used in operating activities                                     (1,387,261)              (974,473)
                                                                                                 ----------------------------------

Cash flows from investing activities:

        Purchase of property and Equipment                                                          (276,116)               (39,301)
                                                                                                 ----------------------------------

                        Net cash used in investing activities                                       (276,116)               (39,301)
                                                                                                 ----------------------------------

Cash flows from financing activities:

        Repayment on borrowings                                                                     (379,116)              (126,725)
        Proceeds from borrowings                                                                   1,000,000                   --   
        Repayments on capital leases                                                                 (22,526)               (12,604)
        Issuance of shares under Reg D                                                               738,011              1,159,727
        Issuance of shares under Reg S                                                               163,352                   --   
                                                                                                 ----------------------------------


                        Net cash provided by financing activities                                  1,499,721              1,020,398
                                                                                                 ----------------------------------

                                Net increase (decrease) in cash                                     (163,655)                 6,624
                                                                                                 ==================================


Cash at beginning of period                                                                          221,875                 56,437
                                                                                                 ----------------------------------

Cash at end of period                                                                            $    58,219            $    63,061
                                                                                                 ==================================

<FN>

                      The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                                                 4

<PAGE>


                                   EDNET, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.   Basis of Presentation
     In  the  opinion  of  management,   the  unaudited  consolidated  condensed
     financial  statements  included  herein have been  prepared on a consistent
     basis with the June 30, 1996 audited consolidated  financial statements and
     include  all  material   adjustments,   consisting   of  normal   recurring
     adjustments, necessary to fairly present the information set forth therein.
     As reported in the audited  financial  statements of June 30, 1996,  EDnet,
     Inc. (the Company) has not been able to generate any operating profit since
     inception, and is attempting to raise additional funds as described in Note
     8. In addition, as described in Notes 7 and 9, the Company is delinquent in
     principal payments on its senior  collateralized  promissory notes (Notes),
     and  has  entered  into  preliminary  discussions  with  several  companies
     regarding   merger,   acquisition,   asset  sales,   and  other   potential
     transactions.  However,  if the Company is unable to raise additional funds
     or consummate a merger or other transaction,  it may not have the financial
     resources to continue as a going concern.  The financial  statements do not
     contain  any  adjustments  that may be needed if the  Company  is unable to
     continue as a going concern.

2.   Consolidation
     The consolidated  financial  statements include the accounts of the Company
     and its wholly owned subsidiaries Entertainment Digital Network, Inc. (EDN)
     and  Internet   Worldwide   Business   Solutions,   Inc.  (IBS).   Material
     inter-company transactions and balances have been eliminated.

3.   Loss per Share
     Loss per  share has been  computed  using the  weighted  average  number of
     common shares  outstanding  totaling  5,178,909 shares for the three months
     ended March 31, 1997 and  4,747,188  shares for the nine months ended March
     31, 1997. There were 2,261,945  weighted average shares outstanding for the
     three and nine  months  ended March 31,  1996.  Due to the  Company's  loss
     position,  common  equivalent  shares have been  excluded  because they are
     anti-dilutive.

4.   Research and Development
     The Company incurred $51,188 of research and development expense during the
     three months ended March 31, 1997.  This is a reduction from prior quarters
     due  primarily to the  licensing  of the  Company's  IBS Internet  software
     product to Breakthrough Software Inc. (Breakthrough) completed in the prior
     quarter.  Total nine month  expenditures on research and  development  were
     $974,284.

5.   Consulting Agreements
     The  Company  entered  into an  agreement  effective  January 12, 1997 with
     Liviakis Financial  Communications,  Inc.  (Liviakis),  to provide investor
     relations  consulting services to the Company for a term of one year ending
     on January 2, 1998. As payment for its services,  Liviakis received 490,000
     unregistered  shares of common stock from the Company,  valued at $643,125,
     which amount will be amortized over the term of the  agreement.  At the end
     of  the   consulting   agreement,   Liviakis  will  have  the  same  demand
     registration  rights  to  register  such  shares  with the  Securities  and
     Exchange  Commission  (SEC) as given to investors  in the December  31,1996
     private  placement  of common  stock  initiated by the Company in the prior
     quarter.

     On January 31, 1997, the Company  entered into a Consulting  Agreement with
     NET Financial International, Ltd. (NET) to assist the Company in raising up
     to $5,000,000 in a series of private placements of stock,  discussed below.
     The  Company  has agreed to pay NET fees equal to 10% of

                                       5

<PAGE>

     the  total  capital  raised in the  financing  as well as  issuing  to it a
     warrant exercisable for two years allowing the purchase of shares of common
     stock with a value on the date of the closing of the financing  equal to 6%
     of the capital raised in the  financing,  at an exercise price equal to the
     closing  bid price of the  common  stock on the date of the  closing of the
     financing.  The  agreement  has a term of three  months and  thereafter  is
     terminable by either party upon ten days prior written notice. In addition,
     if the Company seeks  additional  financing  during the twelve month period
     after the execution of the NET consulting agreement,  the Company must give
     NET the right of first refusal to obtain such  additional  financing,  upon
     the  compensation  terms described  above. As of March 31, 1997 the Company
     has paid NET cash fees of $15,000  and is  obligated  to issue  warrants as
     described in Note 8 in compensation  for assistance in placing the Series A
     Preferred Stock described in Note 8.

6.   Notes Receivable
     In connection  with the licensing by IBS to  Breakthrough of IBS' software,
     completed  in  the  prior  quarter,  the  Company  has  an  unsecured  note
     receivable  from  Breakthrough of $250,000 as of March 31, 1997. No further
     advances  will be made to  Breakthrough  under the note.  The  Company  has
     extended the due date of the note receivable from Breakthrough to March 31,
     1998, and has established a 100% reserve against the note.

7.   Notes Payable
     On January 31, 1997, the Notes, in the amount of $1,000,000, converted into
     a term loan,  with interest  increasing  to 18% and  principal  payments of
     $100,000  per month  commencing  February  15,  1997.  The  Company  made a
     $100,000  principal  payment on February 15, 1997.  On March 11, 1997,  the
     Company's  financial  advisor,  Morgan Fuller Capital Group (Morgan Fuller)
     verbally  agreed to defer the March 15, 1997 payment for a two week period.
     Subsequent to March 31, 1997, the Company received a written payment demand
     notice from Morgan Fuller,  placing the Company in default.  The Company is
     currently in negotiation with Morgan Fuller and participants  regarding the
     Notes.

8.   Equity Private Placements
     As of March 31, 1997 the Company had issued  265,000 shares of common stock
     priced at $1.00  per share  under its  equity  private  placement  of up to
     $5,000,000 initiated December 31, 1996. The Company anticipates terminating
     this private  placement on June 30, 1997,  whether fully subscribed or not.
     Holders of this common stock will have piggyback and Form S-3  registration
     rights.

     Pursuant to a Certificate of Designation filed with the Colorado  Secretary
     of State on February 2, 1997, the Company's  Articles of incorporation were
     amended  to allow  the  Company  to issue  Series A  Preferred  Shares.  On
     February 3, 1997,  the  Company  offered up to  $1,750,000  of its Series A
     Preferred  Stock at $1,000  per share to  non-United  States  persons in an
     offering exempt from registration  under Regulation S of the Securities Act
     of 1933, as amended,  under its agreement with NET,  described  above.  The
     shares  are  convertible  into  common  stock at any time  until  the third
     anniversary  of their  issuance at the lesser of 70% of: (i) the average of
     the  closing  bid  price  of the  common  stock on the  five  trading  days
     preceding  conversion  (the  "Market  Price");  or (ii) the  average of the
     closing bid price for the common stock on the five  trading days  preceding
     the closing  (the  "Closing  Price"),  or (iii) if the Market  Price or the
     Closing  Price is less than $1.43 per share,  the  minimum  price  shall be
     deemed to be $1.43 per share (the "Floor").  The Series A Preferred  Shares
     are also subject to mandatory  conversion on the third anniversary of their
     issuance  at the lesser of 70% of the Market  Price or the  Closing  Price,
     subject to the Floor.  Upon  conversion,  the holders of Series A Preferred
     Shares will be paid a 6%  cumulative  dividend  measured  from the issuance
     date  through the  conversion  date,  payable in common stock valued at the
     Market Price. The Series A

                                       6

<PAGE>

     Preferred Shares have a liquidation  preference of $1,000 per share and all
     other stock of the Company is  subordinate to such  preference.  Holders of
     Series A Preferred Shares or the underlying conversion common stock will be
     granted  piggyback  and Form S-3  registration  rights  for the  underlying
     common  stock.  As of March 31, 1997,  the Company has issued 150 shares of
     Series A Preferred  Stock for $150,000 under this offering,  has recorded a
     30% preferred stock dividend associated with the conversion  discount,  and
     has accrued a 6%  cumulative  dividend  from the date of  issuance  through
     March 31, 1997. The Company  anticipates  terminating this offering on June
     30, 1997,  whether fully  subscribed or not.  Under the agreement  with NET
     described  in Note 5, the  Company is  obligated  to issue  warrants to NET
     equal to 6% of the capital raised for its assistance in placing this stock.
     The warrants will be priced and issued upon closing of the financing.

9.   Subsequent Events

     Consulting Agreement

     The Company is finalizing  an agreement to be effective  April 7, 1997 with
     an  individual  to act as  the  Company's  President  and  Chief  Executive
     Officer. The agreement will specify cash compensation,  participation in an
     incentive  stock  option  plan to be  developed  by the Company in the next
     ninety days,  and  membership  on the  Company's  Board of  Directors.  The
     agreement  may be  terminated  by either  party with  thirty  days  advance
     notice.

     Merger Discussions

     On April 25, 1997, the Company announced that it has initiated  preliminary
     discussions with several potential partners as merger candidates.  To date,
     those discussions have covered merger, acquisition,  asset sales, and other
     potential  transactions.  As of the  date of  this  filing,  no  definitive
     agreement has been reached.

                                       7

<PAGE>


                                   EDNET, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Results of Operations

For the three months ended March 31, 1997, the Company's revenues were $938,852,
an increase of 58%  compared  to revenues of $595,643 in the  comparable  period
last year.  Revenues for the nine months ended March 31, 1997  increased  56% to
$3,016,935,  compared to revenues of  $1,927,902 in the  comparable  period last
year.  Increases in revenue are  attributed  to increases in network  access and
usage fees  associated  with a larger  installed  base and the  addition  of web
development  and hosting  revenues  associated  with the acquisition of IBS. The
equipment component of revenue declined in the three months ended March 31, 1997
due  to   unavailability   of  inventory  for  shipment  due  to  vendor  credit
restrictions, and comparison to unusually high equipment sales in the comparable
period of the prior year which resulted from equipment promotions.

Gross Profit  increased  to $423,830 or 45% of sales,  in the three months ended
March 31, 1997 compared to $237,192,  or 40% of sales, in the equivalent  period
last year.  For the nine months ended March 31, 1997 gross  profit  increased to
$1,298,098,  or 43% of sales, from $750,347,  or 39% of sales, in the equivalent
period  last  year.  Increases  in gross  profit  as a  percentage  of sales are
attributed to growth in usage revenues,  which carry a higher profit margin, and
the addition of web development and hosting revenues,  which carry a high profit
margin.

Operating expenses  (including  Research & Development,  Sales & Marketing,  and
General &  Administrative)  increased  to  $1,121,919  in the three months ended
March 31, 1997 compared to $416,474 in the equivalent  period last year. For the
nine months ended March 31, 1997 operating expenses increased to $3,594,205 from
$1,085,404 in the equivalent  period last year. The Company  incurred $51,188 of
research and  development  expense during the three months ended March 31, 1997.
This is a reduction  from prior  quarters due  primarily to the licensing of the
Company's  IBS  Internet   software   product  to  Breakthrough   Software  Inc.
(Breakthrough)  completed in the prior quarter. Total nine month expenditures on
research and  development  were $974,284.  Operating  expenses for the three and
nine month  periods  ending  March 31, 1997 also  include  $313,160 and $561,112
respectively,  which represent  amortization of the cost of the current Liviakis
consulting  agreement,  amortization of goodwill,  and  non-recurring  legal and
accounting costs associated with the prior quarter's  Breakthrough  transaction,
the  filing  of a Form  10-SB  registration  statement  with  the  SEC,  and the
Company's  initial  three-year  audit.  With  these  items  excluded,  operating
expenses were $757,571 for the three months ended March 31, 1997 and  $2,058,809
for the nine months ended March 31, 1997,  representing  an 82% and 90% increase
respectively  over the  comparable  periods in the prior year.  This increase is
consistent  with the necessary  addition of  infrastructure  associated with the
Company's increase in sales. Current year operating expenses also include public
and investor  relations,  and other costs associated with being a public company
that were not incurred in comparable periods of the prior fiscal year.

Other  expenses  increased  to $161,795 in the three months ended March 31, 1997
compared to $2,956 in the equivalent period last year. For the nine months ended
March 31,  1997  other  expenses  increased  to  $259,089  from  $26,522  in the
equivalent period last year. The increase in other expenses was due to increases
in interest  expense and  amortization of debt issuance costs and note discounts
associated with the Notes (Note 7).

                                       8

<PAGE>

For the three months ended March 31,  1997,  the Company  incurred a net loss of
$863,150 or ($0.17) per share based on a weighted  average of  5,178,909  shares
outstanding, compared with a net loss of $182,238, or ($0.08) per share based on
a weighted  average of  2,261,945  shares  outstanding  in the prior  year.  The
Company  incurred  a net  loss for the  nine  months  ended  March  31,  1997 of
$2,558,462,  or ($0.54) per share based on  4,747,188  weighted  average  shares
outstanding,  compared with a net loss of $361,579,  or ($0.16) per share, based
on 2,261,945 weighted average shares outstanding for the same period last year.


Financial Condition, Liquidity, and Capital Resources

At March 31, 1997,  the Company's  accumulated  deficit was  $5,043,951  and its
working capital  deficit was  $1,680,511.  The rate of increase in the Company's
accumulated  deficit  declined in the quarter ended March 31, 1997 due primarily
to the  elimination  of Research and  Development  expense  associated  with the
licensing of the IBS Internet  software  product to  Breakthrough  (Note 4), and
elimination  of  other  non-recurring   operating  expenses  incurred  in  prior
quarters.  The Company's  working  capital  deficit  improved by $437,805  since
December 31, 1996 due primarily to common and preferred  shares issued under the
equity  private  placements  described  in Note 8. The  Company  was  unable  to
complete and close these offerings as planned,  however, due to a decline in the
Company's stock price late in the quarter,  which reduced investor's interest in
the  offerings.  This came at a time of critical  need and prevented the Company
from making its second principal payment on the Notes (Note 7). As a result, the
Company has made several  adjustments to its operations to further reduce costs,
and,  partially  as  a  result  of  funding  needs,  has  initiated  preliminary
discussions with several potential partners regarding merger, acquisition, asset
sales and  other  potential  transactions  (Note 9).  The  Company  is in active
discussions with Morgan Fuller regarding payment,  conversion, and other options
on the Notes. Subsequent to March 31, 1997, the Company's stock price increased,
renewing  investor   interest  in  the  Company's  equity  private   placements.
Management is continually  monitoring the Company's cash position and the status
of all of its financing alternatives.


Disclosure Pursuant to the Private Securities Litigation Reform Act of 1995

When used in this Management's  Discussion and Analysis, the words "anticipate,"
"estimate,"   "expect,"  and  similar   expressions  are  intended  to  identify
forward-looking  statements.  These  statements are subject to certain risks and
uncertainties,  including,  but not limited to, the following:  risks associated
with  fundraising  and the company's  ability to secure  resources  necessary to
fully develop business products; risks associated with mergers and acquisitions,
the nature of any  transaction  consummated,  and the  ability  to  successfully
operate  a  merged  entity;   business  conditions  in  the  telecommunications,
entertainment,  advertising  and  Internet-related  industries,  and the general
economy;  competitive  factors such as rival  networking  technology,  competing
products,   and  competitive   pricing;   risks  associated  with   development,
introduction,  and acceptance of new products;  the company's  ability to manage
its rapid growth and attract and retain key  employees;  and other risk factors.
Actual results may differ  materially from management  expectations as discussed
here.

                                       9

<PAGE>


PART II  OTHER INFORMATION


Item 1.   Legal Proceedings

None


Item 2.  Changes in Securities

Pursuant to a Certificate  of Designation  filed with the Colorado  Secretary of
State on February 2, 1997, the Company's  Articles of Incorporation were amended
to allow the  Company  to issue  Series A  Preferred  shares  (see Note 8 to the
unaudited consolidated condensed financial statements).


Item 3.  Defaults Upon Senior Securities

On January 31, 1997, the Company's senior  collateralized  promissory  notes, in
the amount of $1,000,000,  converted into a term loan, with interest  increasing
to 18% and  principal  payments of $100,000  per month  commencing  February 15,
1997.  The Company made a $100,000  principal  payment on February 15, 1997.  On
March 11, 1997,  the Company's  financial  advisor,  Morgan Fuller Capital Group
(Morgan  Fuller)  verbally  agreed to defer the March 15, 1997 payment for a two
week  period.  Subsequent  to March 31,  1997,  the  Company  received a written
payment  demand notice from Morgan Fuller,  placing the Company in default.  The
Company  is  currently  in  negotiation  with  Morgan  Fuller  and  participants
regarding  the  Notes  (see  Note  7 to  the  unaudited  consolidated  condensed
financial statements).


Item 4.  Submission of Matters to a Vote of Security Holders

None


Item 5.  Other Information

None


Item 6.   Exhibits and Reports on Form 8-K

(a)(27)  Financial Data Schedule, filed electronically.

(b)      Form 8-K filed March 13, 1997 to report the  February  27, 1997 sale of
         Equity Securities exempt from registration  pursuant to Regulation S of
         the Securities Act of 1933 (Note 8).

                                       10

<PAGE>


SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                  EDNET, INC.




May 15, 1997                             By:      /s/Tom Kobayashi
                                                  ------------------------------
                                                  Tom Kobayashi
                                                  Chairman of the Board



                                         By:      /s/Alan K. Geddes
                                                  ------------------------------
                                                  Alan K. Geddes
                                                  Vice President, Finance and
                                                  Chief Financial Officer

                                       11



<PAGE>

<TABLE>
                                    PART III

<CAPTION>

ITEM 1.  INDEX TO EXHIBITS                                                            Page Number

Exhibit No.       Type of Exhibit
<S>               <C>     <C>                                                   
   (2)            (a)     Articles  of  Incorporation,  as  amended.  PREVIOUSLY
                          FILED.

                  (b)     Bylaws, as amended. PREVIOUSLY FILED.

                  (c)     Certificate  of  Designation,  filed with the Colorado
                          Secretary   of  State  on  February  2,  1997.   FILED
                          HEREWITH.

   (3)            (a)     Security  Agreement  dated as of July 5, 1996, made by
                          the Company,  in favor of Morgan Fuller  Capital Group
                          L.L.C. PREVIOUSLY FILED.

                  (b)     Amendment  No.  1 to  Security  Agreement  dated as of
                          August 1, 1996. PREVIOUSLY FILED.

                  (c)     Form of  Senior  Secured  Promissory  Note in favor of
                          Morgan Fuller  Capital  Group L.L.C.,  executed on the
                          following dates for the following amounts:

                          1.    dated July 5, 1996, in the amount of $500,000;
                          2.    dated July 22, 1996,  in the amount of $200,000;
                                and
                          3.    dated July 22, 1996, in the amount of $300,000.

                           PREVIOUSLY FILED.

                  (d)     Amendment No. 1 to Senior  Secured  Promissory  Notes,
                          dated as of November 15, 1996, executed by the Company
                          and Fuller Capital Group L.L.C. FILED HEREWITH.

                  (e)     Promissory  Note  dated  February  8, 1996 in favor of
                          Irawan Onggara,  in the principal  amount of $250,000.
                          PREVIOUSLY FILED.

                  (f)     Promissory  Note  dated  April  18,  1996 in  favor of
                          Irawan Onggara,  in the principal  amount of $100,000.
                          PREVIOUSLY FILED.

                  (g)     Promissory  Note dated May 20, 1996 in favor of Irawan
                          Onggara,   in  the   principal   amount  of   $75,000.
                          PREVIOUSLY FILED.

                                       33.

<PAGE>



                  (h)     Form of  Promissory  Note dated  June 24,  1996 in the
                          principal  amount  of  $125,000,  payable  to  each of
                          Randall Schmitz and Trevor Stout. PREVIOUSLY FILED.

                  (i)     Breakthrough  Software,  Inc.  Convertible  Promissory
                          Note dated  January 31, 1997 in the  principal  amount
                          not to exceed $250,000  payable to the Company.  FILED
                          HEREWITH.

  (6)             Material Contracts

                  (a)     Agreement  and  Plan of  Reorganization  by and  among
                          EDnet,  Inc.,  EDN Sub,  Inc. and  Internet  Worldwide
                          Business  Solutions,   dated  as  of  June  24,  1996.
                          PREVIOUSLY FILED.

                  (b)     Stock Purchase  Agreement,  dated  September 22, 1995,
                          between  AP  Office  Equipment,   Inc.,  Entertainment
                          Digital  Network,  Inc.  and certain  shareholders  of
                          Entertainment Digital Network, Inc. PREVIOUSLY FILED.

                  (c)     Stock  Purchase  Agreement,  dated  October 18,  1995,
                          between  EDnet,  Inc.  and  certain   shareholders  of
                          Entertainment Digital Network, Inc. PREVIOUSLY FILED.

                  (d)     Employment  Agreement  between  the  Company  and  Tom
                          Kobayashi dated September 1, 1995. PREVIOUSLY FILED.

                  (e)     Employment  Agreement  between  the  Company and David
                          Gustafson dated September 1, 1995. PREVIOUSLY FILED.

                  (f)     EDnet,  Inc.  Incentive Stock Option Plan.  PREVIOUSLY
                          FILED.

                  (g)     EDnet, Inc. 1995-1996  Nonstatutory Stock Option Plan.
                          PREVIOUSLY FILED.

                  (h)     Entertainment  Digital  Network  1993  Flexible  Stock
                          Incentive Plan. PREVIOUSLY FILED.

                  (i)     Form of  Entertainment  Digital  Network  Nonqualified
                          Stock Option Agreement. PREVIOUSLY FILED.

                  (j)     Form of  Entertainment  Digital Network Stock Purchase
                          Warrant. PREVIOUSLY FILED.

                  (k)     Form of EDnet, Inc. Warrant. PREVIOUSLY FILED.

                                       34.

<PAGE>


                  (l)     Consulting  Agreement,  dated as of January 12,  1996,
                          between   the   Company   and    Liviakis    Financial
                          Communications, Inc. PREVIOUSLY FILED.

                  (m)     Consulting Agreement, effective as of January 12, 1997
                          between   the   Company   and    Liviakis    Financial
                          Communications, Inc. FILED HEREWITH.

                  (n)     Financial  Advisory  Agreement,  dated  as of July 31,
                          1995, between EDN and Century Financial Partners, Inc.
                          PREVIOUSLY FILED.

                  (o)     Engagement  letter  dated  May 20,  1996  between  the
                          Company  and  Morgan   Fuller   Capital  Group  L.L.C.
                          PREVIOUSLY FILED.

                  (p)     Engagement  letter  dated June 25,  1996  between  the
                          Company  and  Morgan   Fuller   Capital  Group  L.L.C.
                          PREVIOUSLY FILED.

                  (q)     Engagement  letter  dated June 28,  1996  between  the
                          Company  and  Morgan   Fuller   Capital  Group  L.L.C.
                          PREVIOUSLY FILED.

                  (r)     Engagement  letter  dated June 28,  1996  between  the
                          Company  and  Morgan   Fuller   Capital  Group  L.L.C.
                          PREVIOUSLY FILED.

                  (s)     Engagement  letter dated  October 17, 1996 between the
                          Company and LBC  Capital  Resources,  Inc.  PREVIOUSLY
                          FILED.

                  (t)     Form of  Subscription,  Representation  and Securities
                          Transfer Restriction Agreement between the Company and
                          investors in Units. FILED HEREWITH.

                  (u)     Engagement  letter dated November 19, 1996 between the
                          Company and Morgan Fuller  Capital Group L.L.C.  FILED
                          HEREWITH.

                  (v)     Engagement  letter dated November 21, 1996 between the
                          Company and Morgan Fuller  Capital Group L.L.C.  FILED
                          HEREWITH.

                  (w)     Consulting  Agreement  dated  January 31, 1997 between
                          the  Company  and Net  Financial  International,  Ltd.
                          FILED HEREWITH.

                  (x)     Form of  Subscription,  Representation  and Securities
                          Transfer  Restriction  Agreement between Morgan Fuller
                          Capital Group L.L.C. and investors in  Participations.
                          FILED HEREWITH.

                                       35.

<PAGE>


                  (y)     Form of  Subscription,  Representation  and Securities
                          Transfer Restriction Agreement between the Company and
                          investors in Common Stock. FILED HEREWITH.

                  (z)     Form of  Subscription,  Representation  and Securities
                          Transfer Restriction Agreement between the Company and
                          investors  in EDnet Series A Preferred  Shares.  FILED
                          HEREWITH.

                  (aa)    Amendment   No.  1  to  the   Agreement  and  Plan  of
                          Reorganization by and among EDnet, Inc., EDN Sub, Inc.
                          and Internet Worldwide Business Solutions, dated as of
                          September 13, 1996. FILED HEREWITH.

                  (ab)    Amendment   No.  2  to  the   Agreement  and  Plan  of
                          Reorganization by and among EDnet, Inc., EDN Sub, Inc.
                          and Internet Worldwide Business Solutions, dated as of
                          January 31, 1997. FILED HEREWITH.

                  (ac)    Breakthrough  Software,  Inc. Stock Purchase Agreement
                          by and among  Breakthrough  Software,  Inc. and EDnet,
                          Inc., dated as of January 31, 1997. FILED HEREWITH.

                  (ad)    Technology  License  Agreement  by and among  Internet
                          Worldwide    Business   Solutions   and   Breakthrough
                          Software,  Inc.,  dated as of January 31, 1997.  FILED
                          HEREWITH.

                  (ae)    Form of Consulting  Agreement by and among EDnet, Inc.
                          and each of Randall Schmitz and Trevor Stout, dated as
                          of January 31, 1997. FILED HEREWITH.

  (27)            Financial Data Schedule.  FILED HEREWITH.
</TABLE>

                                       36.

<PAGE>


                                   SIGNATURES

         In accordance  with Section 12 of the Securities  Exchange Act of 1934,
the registrant caused this registration  statement to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                              EDnet, INC.

                                              (Registrant)



Date:    May 29, 1997                         By: /s/Tom Kobayashi
                                                 -------------------------------
                                                 Tom Kobayashi,
                                                 Chairman


Date:    May 29, 1997                         By: /s/Alan Geddes
                                                 -------------------------------
                                                 Alan Geddes,
                                                 Chief Financial Officer

                                       37.