Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period
Ended September 30, 1999 Commission File No. 0-26884
NETTER DIGITAL ENTERTAINMENT, INC.
(exact name of registrant as specified in charter)
Delaware 95-3392054
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
5125 Lankershim Blvd.
North Hollywood, California 91601
(Address of principal executive office)
Registrant's telephone number, including area code: 818/753-1990
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
As of November 15, 1999 the Registrant had 3,334,405 shares of its Common Stock,
$.01 par value, issued and outstanding.
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited) NUMBER
Consolidated Balance Sheets as of September 30, 1999 and
June 30, 1999. 3
Consolidated Statements of Operations for the three-month
periods ended September 30, 1999 and September 30, 1998. 4
Consolidated Statements of Cash Flows for the three-month
periods ended September 30, 1999 and September 30, 1998. 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-12
Item 3. Quantitative and Qualitative Discloures About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
Page 2 of 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 545,918 $ 63,086
Accounts receivable, net 950,118 781,835
Inventory 213,119 220,930
Production costs, net 307,627 350,881
Other 112,562 63,961
Deferred tax asset 150,000 150,000
Net assets, discontinued operations 1,710,605 1,782,605
-------------- -------------
TOTAL CURRENT ASSETS 3,989,949 3,413,298
EQUIPMENT, net 3,195,643 3,108,890
DEPOSITS AND OTHER ASSETS 364,531 336,669
-------------- -------------
$ 7,550,123 $ 6,858,857
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and production fee advances $ 1,331,773 $ 1,244,051
Accrued expenses 148,481 95,979
Deferred revenue 491,807 160,228
Current portion of capital lease obligations 1,119,390 997,040
Notes payable 450,000 450,000
-------------- -------------
TOTAL CURRENT LIABILITIES 3,541,451 2,947,298
CAPITAL LEASE OBLIGATIONS 963,053 1,000,339
NOTES PAYABLE (net discount of $200,000 and $220,000, resp.) 800,000 780,000
MINORITY INTEREST 500 500
-------------- -------------
STOCKHOLDERS' EQUITY :
Preferred stock, $.001 par value, 2,000,000 shares
authorized; 60,161 and 57,286 shares issued and
outstanding, respectively 379,074 353,200
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,334,405 shares issued and outstanding 33,344 33,344
Additional paid-in capital 4,966,171 4,966,171
Retained Earnings (3,133,470) (3,221,995)
-------------- -------------
TOTAL STOCKHOLDERS EQUITY 2,245,119 2,130,720
-------------- -------------
$ 7,550,123 $ 6,858,857
============== =============
<FN>
<FN1>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 3 of 13
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Sept. 30,
---------------------------
1999 1998
---------------------------
(Unaudited) (Unaudited)
REVENUES: $ 2,924,948 $ 6,887,621
EXPENSES:
Production 2,099,580 5,989,455
General and administrative 645,310 647,969
------------ ------------
TOTAL EXPENSES 2,744,890 6,637,424
------------ ------------
OPERATING INCOME 180,058 250,197
------------ ------------
OTHER INCOME (EXPENSE):
Interest income - 3,020
Interest (expense) (78,335) (39,657)
------------ ------------
TOTAL OTHER (EXPENSE) (78,335) (36,637)
------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 101,723 213,560
PROVISION FOR INCOME TAXES - 40,000
------------ ------------
INCOME FROM CONTINUING OPERATIONS $ 101,723 $ 173,560
DISCONTINUED OPERATIONS
(Loss) from operation of
Videssence, Inc. (net of income
tax (benefit)) - (95,989)
------------ ------------
(LOSS) FROM DISCONTINUED
OPERATIONS - (95,989)
------------ ------------
NET INCOME $ 101,723 $ 77,571
Cumulative preferred stock dividend 13,198 14,097
------------ ------------
Net income to common shareholders $ 88,525 $ 63,474
============ ============
Basic and diluted earnings (loss) per share:
Continuing operations $ 0.03 $ 0.05
Discontinued operations - (0.03)
------------ ------------
Net earnings per share $ 0.03 0.02
============ ============
Weighted average common shares outstanding 3,334,405 3,334,405
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4 of 13
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
--------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101,723 $ 77,571
-------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 238,293 208,145
Amortization 46,078 26,078
Changes in operating assets and liabilities:
(Increase) in accounts receivable (168,283) (186,529)
(Increase) decrease in other current assets (48,601) 18,855
Decrease (increase) in inventory 7,811 (28,101)
Decrease (increase) in production costs 43,254 (5,389)
(Increase) in deposits and other assets (27,862) (6,296)
Increase in accounts payable 87,722 110,268
Increase in accrued expenses 52,502 7,046
Increase (decrease) in deferred revenue 331,579 (254,732)
Decrease (increase) in net assets from
discontinued operations 122,286 (190,176)
--------------- ------------
684,779 (300,831)
--------------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 786,502 (223,260)
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (70,288) (55,475)
--------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (70,288) (55,475)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of capital lease obligations (233,382) (150,001)
--------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (233,382) (150,001)
--------------- -------------
NET INCREASE (DECREASE) IN CASH 482,832 (428,736)
Cash, beginning of period 63,086 1,634,809
--------------- -------------
Cash, end of period $ 545,918 $1,206,073
=============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Cash paid for interest $ 58,362 $ 60,612
Cash paid for income taxes $ 800 $ 38,000
Noncash activity:
Stock dividend $ 13,199 $ 14,097
Purchase of equipment through leases payable $ 204,435 $ 250,212
<FN>
<FN1>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 5 of 13
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required for annual financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes for the year ended June 30, 1999 included in
the Form 10-K for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of September 30, 1999 and June 30, 1999, and the results of
operations and cash flows for the three-month periods ended September 30, 1999
and 1998 have been included.
The results of operations for the three-month period ended September 30, 1999,
are not necessarily indicative of the results to be expected for the full fiscal
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K as filed with the
Securities and Exchange Commission for the year ended June 30, 1999.
DISCONTINUED OPERATIONS
Effective the quarter ended December 31, 1998, the Board of Directors voted to
classify and operate the Company's Videssence subsidiary as a discontinued
operation. The Company's Board of Directors and financial advisors have
determined that at this time the Company's best strategy for growth is to focus
directly on its core entertainment business and to divest its non-entertainment
business activities. Accordingly, the Board has instructed management to divest
the Videssence subsidiary, which manufactures and distributes media lighting
products, by the end of 1999. The Company is reviewing how to best capitalize
on its recent investment in Videssence and currently is in negotiations with a
potential buyer for the Videssence operation. Of course, there can be no
assurance that the Company will consummate a sale of the Videssence operation
with this buyer or any other buyer on terms acceptable to the Company. In the
quarter ended December 31, 1998, the Company accrued a provision for an
estimated anticipated loss on the divestiture of the Videssence operation of
approximately $1.9 million which includes $750,000 for pretax operating losses
during the phase-out period. Actual results could differ from this estimate.
The results of operations for this business have been reclassified to
discontinued operations for all periods in the accompanying unaudited
consolidated financial statements.
Page 6 of 13
Summarized results of the discontinued operation are as follows:
Three Months Ended
September 30,
-------------
1999 1998
------ ------
Net Sales $ 732,234 $ 999,506
Cost and expenses 682,664 1,112,495
----------- -----------
Income (loss) before inc. taxes 49,570 (112,989)
Income tax (benefit) - (17,000)
----------- -----------
Income (loss) from discontinued
operations $ 49,570 $ (95,989)
=========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company is engaged in two primary business activities:
- -Production. The Company is engaged in the acquisition, development and
production of television series, made-for-television movies, documentaries,
theatrical motion pictures and multimedia products (collectively and
individually referred to as the "Productions" or "Projects"). The Company
specializes in producing both live-action Projects ("live-action") which
incorporate traditional sets and human actors in conjunction with computer
generated images ("CGI") as well as 100% CGI animated Projects ("computer
animated"). On the live-action side, the Company has produced the award winning
series "Babylon 5," the follow-on series entitled "Crusade," and associated
television movies. As for computer animated shows, the Company has recently
completed the first season of the children's series, "Voltron: The Third
Dimension" ("Voltron"), putting it at the forefront of the fully animated or
animation intensive production market for television. In the first quarter of
fiscal year 2000, the Company began production on two all new computer animated
television series, including a contract providing for approximately $8.0 million
in revenues to the Company in fiscal 2000 to produce 26 one-half hour episodes
of an animated television series based on one of England's most popular comic
books. The Company may undertake a Production which is sold or licensed under
a production contract with a major entertainment studio or distributor, or it
may be contracted by an outside entity to fully produce a project on the
entity's behalf. Under both scenarios, the costs of the Production are borne by
the buyer, licensor or contracting party, often severely limiting the
possibility of additional revenues above the contracted amount. The Company is
now seeking to expand on this model by undertaking projects which it can retain
greater equity ownership in, allowing it to share in all revenue streams in
perpetuity (see "Liquidity and Capital Resources" below).
- -Production Services. In support of its own Productions, for which it is
responsible for the complete production or a significant portion of a
production, as with "Babylon 5," "Crusade," and "Voltron," the Company has
developed significant expertise in computer graphics production, digital
post-production and various other digital imaging techniques. The quality and
popularity of these Productions in conjunction with the cutting-edge techniques
employed in their creation has created industry-wide recognition of the
Company's creative and technical skills. To more fully exploit these skills,
the Company formed the Production Services division to support the active market
that exists for projects requiring creative, high-quality, and cost-effective
digital graphics and effects. This division provides CGI services consisting of
computer animation and visual effects to outside clients with such needs. Since
its inception, this division has provided services in the feature film,
television production, television promotion, industrial/corporate video and
television commercial segments. In the first quarter of fiscal 2000, the
Company completed work on its biggest contract to date, the creation of all of
the visual effects for the major motion picture, "Bats" that was released for
theatrical distribution by Destination Films in October 1999.
Page 7 of 13
Results of Operations
Revenues. The Company's revenues for the quarter ended September 30, 1999 was
approximately $2.9 million for a decrease of 57.5% as compared to approximately
$6.9 million for the quarter ended September 30, 1998. This decrease resulted
primarily from a change in the Project mix to a greater percentage of fully
animated productions. In general, live-action television Productions are
significantly more expensive to produce and generate significantly more revenue
than fully animated television series. In the first quarter of fiscal 2000,
revenues from live-action productions decreased $5.3 million from the respective
prior year quarter as the Company was not in production on any of these
projects. This decrease was partially offset by an increase in revenues from
its animated series of $1.3 million as the Company's prior year work on
"Voltron" was replaced by its two new contracts for television animated series.
Gross Margin. The Company's gross margin for the quarter ended September 30,
1999 increased to 28.2% of net revenues, from 13.0% of net revenues in the same
prior year period. This increase in gross margin resulted primarily from the
change in Project mix. The Company generates the greatest gross margins on
those Projects that require the greatest amount of computer animation and
effects in relation to their total budgets. With Projects where this ratio is
high, as with our fully computer animated series, we will generate a higher per
project gross margin percentage than those where the ratio is low, as with our
live-action Productions. Although the Company generates more revenues from its
live-action Productions as compared to its fully animated ones, a larger portion
of these revenues flow-through directly as expenses. Hence, although the
Company may derive similar margin dollars from its different Productions, the
live-action Projects will register a lower gross margin percentage due to their
greater revenues and associated cost of sales.
General and Administrative Expenses. General and administrative expenses
remained basically flat from the quarter ended September 30, 1998 to the quarter
ended September 30, 1999. G&A expenses were approximately 22.1% as a percentage
of net revenues for the three-month period ended September 30, 1999, as compared
to 9.4% for the same prior year period. As described above, this increase
resulted primarily from the decrease in revenues for the first quarter ended
September 30, 1999 as compared to the comparable prior year period.
Other Income and Expenses. Interest expense increased to $78,335 for the
quarter ended September 30, 1999, from $39,657 in the same period of the
previous year due to the Company's further utilization of capital lease lines
for continued expansion of its computer animation and visual effects facilities
and the amortization of discount on notes payable.
Page 8 of 13
Discontinued Operations. Effective the quarter ended December 31,1998, the
Board of Directors voted to classify and operate the Company's Videssence
subsidiary as a discontinued operation. The Company's Board of Directors and
financial advisors determined that the Company's best strategy for growth is to
focus directly on its core entertainment business and to divest its non-
entertainment business activities. Accordingly, the Board has instructed
management to divest the Videssence subsidiary, which manufactures and
distributes media lighting products, by the end of 1999. The Company is
reviewing how to best capitalize on its recent investment in Videssence and
currently is in negotiations with a potential buyer for the Videssence
operation. Of course, there can be no assurance that the Company will
consummate a sale of the Videssence operation with this buyer or any other buyer
on terms acceptable to the Company. In the quarter ended December 31, 1998, the
Company accrued a provision for an estimated anticipated loss on the divestiture
of the Videssence operation of approximately $1.9 million which includes
$750,000 for pretax operating losses during the phase-out period. Actual
results could differ from this estimate. The results of operations for this
business have been reclassified to discontinued operations for all periods in
the accompanying unaudited consolidated financial statements.
Pretax profit at the Videssence operation for the quarter ended September 30,
1999 was $49,570 as compared to a pretax loss of $112,989 for the same
respective period of the prior year. The primary factor leading to this increase
compared to last year was a streamlining of operations consisting of cost
reductions and efficiency increases. For a further summary of the operating
results of Videssence, see the section entitled "Discontinued Operations" in the
"Notes to Consolidated Financial Statements."
Liquidity and Capital Resources
The Company has funded its operations to date primarily through cash flows from
operations, its initial public offering of Common Stock and Warrants completed
in November 1995, which generated net proceeds of approximately $3.2 million,
and a February 1997 preferred stock placement which raised $424,000 in gross
proceeds. On March 29, 1999, the Company obtained a $1.0 million funding
facility (the "Facility") from AIB Investments Pty Limited. By May 14, 1999,
the entire $1.0 million in principal had been drawn down on the Facility and is
evidenced by non-interest bearing Senior Subordinated Convertible Notes, due
March 29, 2002. On June 10, 1999, the Company entered into a short-term note
with Allco Finance Group for $450,000 with interest bearing 10% annually. This
note is due on demand, and as of November 11, demand has not been made and all
interest through August 1999 has been paid.
With respect to production costs for particular entertainment Projects, the
Company has customarily entered into production contracts with studios,
networks, distributors, and other production entities who cover 100% of the
production funding. In these instances, the production funds are received by
the Company during the production stage of a Project. To date, the Company has
been able to secure production financing from a major studio, network or
distributor for its Projects or has been able to secure production contracts
with others. While the Company believes that similar financing arrangements can
be made for future productions, there can be no assurance that the Company will
be successful in obtaining such production financing or contracts. In that
event, the Company would have to secure alternative sources for financing
Projects. Moreover, as the Company continues to develop new forms of high
technology production activities and projects for new entertainment ancillary
markets, it may elect to make additional overhead and equity commitments for
these new projects. These potential, new financial commitments, if pursued,
could create additional risk for the Company as to whether it will recover the
costs of its investment and generate a profit.
Page 9 of 13
In the quarter ended September 30, 1999, the Company began production on two all
new, 100% CGI animated television series to air in fiscal 2000. On one of these
series, part of the contractual payments are deferred until the latter part of
the third and fourth quarters of fiscal 2000, which could cause a cash flow
shortfall in the third quarter. The Company is actively engaged in discussions
on several potential new Projects and is actively pursuing a potential source of
additional financing. Although there can be no assurance that the Company will
be successful in these efforts, management believes that the Company will avoid
a cash flow shortfall through one or more of these alternatives. Further, as
one of these productions only runs through February 2000, the Company is
actively seeking an additional series to be a replacement for the remaining
months of the fiscal year. If the Company is unable to contract for this
replacement series or if either of these series are not renewed through an
additional agreement extension after the first season and the Company is unable
to replace the series with ones generating comparable revenues, the Company's
financial condition and operations would be materially adversely affected.
Cash provided by operating activities was approximately $787,000 for the
three-months ended September 30, 1999, principally from the income earned by the
Company in this quarter and an increase in deferred revenue as the Company
received cash infusions for its new productions.
Cash used in financing activities was approximately $233,000 for the
three-months ended September 30, 1999 as money was used for principal payments
on capital leases.
As of September 30, 1999, the Company's sources of liquidity included cash and
cash equivalents totaling approximately $546,000.
The Company has approximately $2.1 million of outstanding capital leases as of
September 30, 1999. The Company uses capital leases primarily for equipment
additions to its in-house post-production and graphics/animation facilities.
Year 2000
The Year 2000 issue results from the development of computer programs and
computer chips using two digits rather than four digits to define the applicable
year. Computer programs and/or equipment with time-sensitive software or
computer chips may recognize the date using "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations and
cause disruptions to business operations.
The Company's entertainment production and computer animation and visual effects
production operations rely heavily on computers in the development and
production of projects and in the provision of digital media production
services, but do not rely heavily on computers for operating activities such as
the processing of payroll. In contrast, the Company's Videssence subsidiary
relies heavily on computers for the processing of payroll, accounts receivable
and accounts payable, but does not rely heavily on computers in manufacturing
and distributing its products. The Company also makes use of computers for
efficient communications with employees and customers, including extensive use
of e-mail systems and the Internet. Finally, embedded technology such as
microcontrollers are commonly found in computers used throughout the Company's
operations. The complete failure of these systems could have a material negative
impact on the operations of the Company. In addition, most of the Company's
major suppliers and customers rely heavily on computer systems and failures in
such systems could disrupt their operations.
Page 10 of 13
The Company has substantially completed the process of identifying and
addressing potential Year 2000 difficulties in its technological operations,
including information technology ("IT") applications, IT technology and support,
desktop hardware and software, non-IT systems and important third party
operations. Based on its assessment of these efforts, the Company believes
that Year 2000 issues will not have a material adverse effect on the Company's
business, operations or financial condition. Further, management expects that
costs which have been or will be incurred to assure Year 2000 capability will
not have a material adverse effect on the Company's financial position or
results of operations. The Company has undertaken continuing efforts to update,
modify or replace, and test systems in the ordinary course of business. Based
on such efforts, the Company does not believe that it will be required to
otherwise modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter.
The Company estimates its cost to assess and achieve Year 2000 compliance will
be less than $10,000, of which less than $5,000 has been incurred through
September 30, 1999. These amounts do not include costs incurred in the
Company's replacement or upgrading of existing computer systems in the ordinary
course of business. No system replacements were made or accelerated to comply
with Year 2000 issues. These estimates are subject to revisions based on future
assessments and responses from vendors and customers. The Company expects to
continue to fund its Year 2000 costs through its cash flows from operations and
to expense modification costs as incurred.
Management believes the primary Year 2000 risks to the Company's business are
external to the Company and relate to the Year 2000 readiness of the Company's
third party suppliers and customers. Consequently, the Company's Year 2000
effort also includes communication with significant third party suppliers and
customers to determine the extent to which the Company's systems are vulnerable
to those parties' failures to reach Year 2000 compliance. The Company is
currently contacting significant suppliers of products and services to determine
that the suppliers' operations and the products and services they provide are
Year 2000 capable. Based on responses it has received to date, the Company does
not believe that the impact of Year 2000 issues on such suppliers will be
material to the Company's business, operations or financial condition. However,
there can be no assurance that another company's failure to ensure Year 2000
capability will not have an adverse effect on the Company.
Overall, the Company believes that it will complete its Year 2000 effort and
that there will not be a significant disruption to its business caused by the
failure of its own computer systems. In addition, the Company believes that, to
the extent that its entertainment production and computer animation and visual
effects production operations rely on suppliers for specialty services, there
are a variety of alternative suppliers available in the event the Company's
existing suppliers face Year 2000 problems. The Company's Videssence subsidiary
relies heavily on suppliers of parts for its lighting products. Although there
are alternative sources for these items, the Videssence subsidiary may
experience a disruption in its receipt of these parts if it is forced to replace
existing suppliers who experience Year 2000 problems. Consequently, the
Company's Videssence subsidiary could experience disruptions in its operations
as a result of failures in the computer systems of its major vendors.
Accordingly, the Company is developing contingency plans such as backup vendors
to help mitigate the effects of such failures, if any.
Page 11 of 13
Forward-Looking Statements
The foregoing discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended. There are risks and
uncertainties that could cause future events and results to differ materially
from those anticipated by management in the forward-looking statements included
in this report. Among these risks and uncertainties are the effect of the Year
2000 computer problem on the Company's internal systems and the effect on the
Company's business of any failures in the computer systems of the Company's
major vendors or customers.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain market risks that are inherent in the
Company's financial instruments arising from transactions that are entered
into in the normal course of business. The Company is subject to interest rate
risk on its $450,000 short-term note payable, obtained in June 1999, which has a
fixed interest rate of 10%. Similarly, when the Company enters into capital
leases, these leases have fixed interest rates based on the prevailing rates at
the date of contract. The Company runs the risk that market rates will decline
and the required payments will exceed those based on current market rates.
There is no interest rate risk with the Company's $1.0 million long-term notes
payables as these notes are interest free. Under its current policies, the
Company does not use interest rate derivative instruments to manage its exposure
to interest rate changes. The Company generally does not transact business in
foreign currencies and is therefore generally not exposed to financial market
risk resulting from fluctuations in foreign currency exchange rates.
Page 12 of 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
Exhibit Description
------- -----------
27 Financial Data Schedule. (1)
----------------------
(1) Filed herewith.
(b.) Reports on Form 8-K
None.
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.
NETTER DIGITAL ENTERTAINMENT, INC.
Registrant
Dated: November 15, 1999 By: /s/Chad Kalebic
-------------------
Chad Kalebic
Chief Financial Officer
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 545,918
<SECURITIES> 0
<RECEIVABLES> 950,118
<ALLOWANCES> 0
<INVENTORY> 213,119
<CURRENT-ASSETS> 3,989,949
<PP&E> 4,907,007
<DEPRECIATION> (1,711,364)
<TOTAL-ASSETS> 7,550,123
<CURRENT-LIABILITIES> 3,541,451
<BONDS> 0
0
379,074
<COMMON> 33,344
<OTHER-SE> 4,966,171
<TOTAL-LIABILITY-AND-EQUITY> 7,550,123
<SALES> 0
<TOTAL-REVENUES> 2,924,948
<CGS> 0
<TOTAL-COSTS> 2,099,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,335
<INCOME-PRETAX> 101,723
<INCOME-TAX> 0
<INCOME-CONTINUING> 101,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,723
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
