<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-18034
INDENET, INC.
(Exact name of registrant as specified in charter)
Delaware 68-0158367
- --------------------------------------------------------------------------------
(State or other jurisdiction IRS Employer
of incorporation) Identification No.)
16000 Ventura Blvd., Suite 700, Encino, CA 91436
(Address of principal executive office)
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code: (818) 461-8525
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [X] NO [ ]
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 17,722,202 Shares of Common
Stock, Par Value $.001 as of November 14, 1997.
<PAGE> 2
INDENET, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Consolidated Balance Sheets --
September 30, 1997 and March 31, 1997............................. 1
Consolidated Statements of Operations -Three and Six-months
Ended September 30, 1997 and 1996................................. 3
Consolidated Statement of Changes in Stockholders'
Equity - Six-months Ended September 30, 1997...................... 4
Consolidated Statements of Cash Flows --
Six-months Ended September 30, 1997 and 1996...................... 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................... 9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings................................................. 12
Item 6. Exhibits and Reports on Form 8-K.................................. 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDENET, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,210,464 $ 2,885,406
Restricted cash 1,490,400 1,514,902
Accounts and other receivables, net 4,614,947 8,425,017
Inventories -- 311,434
Notes receivable, current portion 770,909 434,080
Equity securities held for sale -- 2,341,262
Prepaid expenses 461,392 922,344
----------- -----------
Total current assets 17,548,112 16,834,445
Property and equipment, less accumulated depreciation and
amortization 2,666,529 11,872,587
Notes receivable, net of current portion 3,501,978 2,407,314
Equity securities 1,600,000 --
Capitalized software development costs, net 1,259,181 838,837
Customer list, net 15,881,483 14,195,501
Goodwill, net 3,264,552 6,320,092
Other long-term assets 126,000 324,531
----------- -----------
TOTAL ASSETS $45,847,835 $52,793,307
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE> 4
INDENET, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 6,320,785 $ 10,323,132
Deferred income 3,341,338 2,406,977
Notes payable, current portion 9,236,636 9,089,520
Notes payable to shareholders of acquired companies,
current portion 14,146 6,844,117
Capital lease obligations, current portion 691,788 645,755
------------ ------------
Total current liabilities 19,604,693 29,309,501
Notes payable to shareholders of acquired companies,
net of current portion 192,325 172,123
Notes payable, net of current portion 1,255,500 4,896,228
Capital lease obligations, net of current portion 1,277,687 702,321
Other long-term liabilities 9,116 65,486
------------ ------------
TOTAL LIABILITIES 22,339,321 35,145,659
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A, $.0001 par value
Authorized - 1,200 shares, 190 issued and outstanding 1 1
Preferred stock, Series B, $.0001 par value
Authorized - 40,000,000 shares
Issued and outstanding - none and 216,667 -- 22
Preferred stock, Series C, $.0001 par value
Authorized - 1,200 shares
Issued and outstanding - 592 and 789 1 1
Common stock $.001 par value
Authorized - 100,000,000 shares
Issued and outstanding - 17,364,018 and 17,181,064 17,364 17,181
Additional paid-in capital 46,578,558 49,209,922
Accumulated deficit (23,540,176) (32,036,455)
Foreign currency translation adjustment 452,766 456,976
------------ ------------
Total stockholders' equity 23,508,514 17,647,648
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,847,835 $ 52,793,307
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 5
INDENET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 6,838,644 $ 13,047,803 $ 18,324,600 $ 22,030,519
Cost of sales 3,470,984 6,903,922 9,172,711 11,033,476
------------ ------------ ------------ ------------
Gross profit 3,367,660 6,143,881 9,151,889 10,997,043
Operating expenses:
Selling, general and administrative 2,780,029 5,584,602 7,224,618 10,117,536
Depreciation and amortization 789,032 1,712,013 1,956,486 2,873,930
Research and development -- 263,993 -- 513,587
Corporate 436,910 623,726 790,832 1,172,531
Severance costs 495,527 -- 495,527 --
------------ ------------ ------------ ------------
4,501,498 8,184,334 10,467,463 14,677,584
------------ ------------ ------------ ------------
Operating loss (1,133,838) (2,040,453) (1,315,574) (3,680,541)
Other income (expense):
Interest income 220,049 57,121 300,487 149,508
Interest expense (364,816) (528,872) (898,128) (861,735)
Gain on sale of subsidiaries 10,412,442 -- 10,412,442 --
Gain on extinquishment of debt 774,740 -- 774,740 --
Loss on sale of equity securities (499,792) -- (501,607) --
Miscellaneous, net 109,099 34,451 47,626 190,727
------------ ------------ ------------ ------------
10,651,722 (437,300) 10,135,560 (521,500)
------------ ------------ ------------ ------------
Income/(loss) before income tax expense and
allocation to minority interest 9,517,884 (2,477,753) 8,819,986 (4,202,041)
Income taxes 3,110 54,247 3,910 57,440
------------ ------------ ------------ ------------
Income/(loss) before allocation to
minority interest 9,514,774 (2,532,000) 8,816,076 (4,259,481)
Allocation to minority interest -- (240,699) -- (324,416)
------------ ------------ ------------ ------------
Net income/(loss) 9,514,774 (2,291,301) 8,816,076 (3,935,065)
Dividends to preferred shareholders 113,997 123,838 319,797 302,338
------------ ------------ ------------ ------------
Net income/(loss) allocable to
common shareholders $ 9,400,777 $ (2,415,139) $ 8,496,279 $ (4,237,403)
============ ============ ============ ============
Net income/(loss) per share $ 0.54 $ (0.15) $ 0.49 $ (0.28)
============ ============ ============ ============
Weighted average number of
common shares outstanding 17,410,003 16,319,379 17,296,159 15,044,036
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 6
INDENET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock
------------------------ ------------------------ ------------------------
Number of Preferred Number of Preferred Number of Preferred
Shares Stock Shares Stock Shares Stock
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1997 190 $1 216,667 $ 22 789 $1
Conversion of Series B
Preferred Stock to
Common Stock -- -- (216,667) (22) -- -
Conversion of Series C
Preferred Stock to cash -- -- -- -- (197) -
Reclassification of
securities yield on
convertible debt to
accrued expenses -- -- -- -- -- -
Cashless exercise of
employee stock options -- -- -- -- -- -
Purchase and cancellation
of treasury shares -- -- -- -- -- -
Amount to be paid in Common
Stock related to stated
accretion on Series A and
Series C Preferred Stock -- -- -- -- -- -
Preferred stock dividends -- -- -- -- -- -
Net income -- -- -- -- -- -
Foreign currency translation
adjustment -- -- -- -- -- -
--- -- -------- ---- ---- --
Balance at September 30, 1997 190 $1 -- $ -- 592 $1
=== == ======== ==== ==== ==
</TABLE>
<TABLE>
<CAPTION>
Common Stock Foreign
----------------------- Additional Currency
Number of Common Paid-in Accumulated Translation
Shares Stock Capital Deficit Adjustment Total
---------- -------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1997 17,181,064 $ 17,181 $ 49,209,922 $(32,036,455) $ 456,976 $ 17,647,648
Conversion of Series B
Preferred Stock to
Common Stock 392,452 392 (370) -- -- --
Conversion of Series C
Preferred Stock to cash -- -- (1,576,000) -- -- (1,576,000)
Reclassification of
securities yield on
convertible debt to
accrued expenses -- -- (799,000) -- -- (799,000)
Cashless exercise of
employee stock options 56,247 57 (57) -- -- --
Purchase and cancellation
of treasury shares (265,745) (266) (549,734) -- -- (550,000)
Amount to be paid in Common
Stock related to stated
accretion on Series A and
Series C Preferred Stock -- -- 293,797 -- -- 293,797
Preferred stock dividends -- -- -- (319,797) -- (319,797)
Net income -- -- -- 8,816,076 -- 8,816,076
Foreign currency translation
adjustment -- -- -- -- (4,210) (4,210)
----------- -------- ------------ ------------ --------- ------------
Balance at September 30, 1997 17,364,018 $ 17,364 $ 46,578,558 $(23,540,176) $ 452,766 $ 23,508,514
=========== ======== ============ ============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 7
INDENET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Six Months September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 8,816,076 $ (3,935,065)
Adjustments to reconcile net income/(loss) to net
cash used in operating activities:
Depreciation and amortization 1,956,486 2,873,930
Gain on sale of subsidiaries (10,412,442) --
Gain on extinguishment of debt (774,740) --
Loss on sale of equity securities 501,607 --
Gain on sale of building and other property
and equipment (17,117) (128,811)
Unrealized loss on notes receivable due
to foreign exchange 22,833 --
Allocation of loss to minority interest -- (324,416)
Debt refinancing charge -- 150,000
Changes in operating assets and liabilities:
Restricted cash 27,023 (17,809)
Accounts receivable (1,112,230) (2,113,702)
Inventories 53,153 (211,101)
Prepaid expenses 477,216 (153,484)
Other assets (115,213) 186,725
Accounts payable and accrued expenses (657,539) 1,697,338
Deferred income 929,575 (261,594)
Other long-term liabilities (56,385) 48,400
------------ ------------
NET CASH USED IN OPERATIONS (361,697) (2,189,589)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (231,411) (1,987,753)
Capitalized software development costs (561,337) (2,129,300)
Collection on notes receivable 189,480 --
Deferred financing costs -- (330,593)
Net proceeds from sale of building and other
property and equipment 65,559 1,158,186
Net proceeds from sale of subsidiary 13,495,794 --
Proceeds from sales of equity securities 1,839,656 --
Purchase of customer list/businesses (1,427,625) (11,036,522)
Cash of acquired businesses -- 933,550
Cash of divested business (42,451) --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,327,665 (13,392,432)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (1,620,668) (47,435)
Repayment of notes payable to shareholders (4,023,958) --
Proceeds from notes payable 2,155,716 --
Proceeds from exercise of warrants and options -- 289,699
Net proceeds from private placements -- 14,006,674
Repurchase of Series C preferred stock (1,576,000) --
Purchase and cancellation of treasury stock (550,000) --
Dividends on preferred stock (26,000) (39,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,640,910) 14,209,938
------------ ------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 7,325,058 (1,372,083)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,885,406 3,818,133
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 10,210,464 $ 2,446,050
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest 518,634 641,177
Income taxes 3,910 57,440
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 8
INDENET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the unaudited consolidated financial
statements contain all adjustments, consisting solely of adjustments of
a normal recurring nature, necessary to present fairly the financial
position, results of operations and cash flows for the periods
presented. These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not contain all the
information and footnotes required in a complete set of financial
statements. These statements should be read in conjunction with the
Company's consolidated financial statements and footnotes thereto as of
March 31,1997 included in the Company's Form 10-KSB. The results of
operations for the three and six-month periods ended September 30, 1997
is not necessarily indicative of the results for the year ending March
31, 1998.
The accompanying consolidated financial statements include the accounts
of IndeNet, Inc., plus the accounts of its subsidiaries during the
periods that such subsidiaries were owned by IndeNet. The subsidiaries
include the wholly-owned subsidiaries of Mediatech (through its sale on
July 18, 1997), Starcom (through its sale on July 18, 1997), CCMS (since
its acquisition on May 16, 1996), Enterprise (since its acquisition on
May 24, 1996) and its 66.67% owned subsidiary Channelmatic (through its
sale on March 24, 1997) (collectively "the Company"). On April 1, 1997,
Starcom and Mediatech merged into Starcom Mediatech, Inc. and are
hereinafter referred to as Mediatech. On July 18, 1997, all of the stock
of Starcom Mediatech, Inc. was sold. See Note 6 below for further
discussion on the sale of Starcom Mediatech, Inc.
2 Until the sale of Mediatech, the Company leased office, production and
warehousing facilities in its Chicago, Illinois location from real
estate partnerships in which a former shareholder of Mediatech has a
controlling interest. Total rent expense paid to these partnerships for
the three-months ended September 30, 1997 and 1996 was $28,547 and
$162,002 and for the six-months ended September 30, 1997 and 1996 was
$184,886 and $367,120. The Company leased office space in Alpine,
California from a director and stockholder of the Company, and a
shareholder of Channelmatic. Total rent expense paid to the officer for
the three and six-months ended September 30, 1996 was $19,500 and
$39,000.
3 Net income per share was determined by dividing net income less
preferred stock dividends by the weighted average number of shares and
common share equivalents outstanding during the period. The impact of
common share equivalents on the determination of primary and
fully-diluted earnings per share is not deemed to be material for the
three and six-months ended September 30, 1997.
Net loss per share is calculated by taking the sum of the net loss plus
preferred stock dividends divided by the weighted average number of
common shares outstanding. Common stock equivalents, such as stock
options, warrants and convertible preferred stock, have not been
included since their effect would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings
per Share." SFAS 128 establishes new standards for computing and
presenting earnings per share and will be effective for the Company's
interim and annual periods ending after December 15, 1997. Early
adoption of the Statement is not permitted. SFAS 128 requires
restatement of all previously reported earnings per share data that are
presented. SFAS 128 replaces primary and fully diluted earnings per
share
6
<PAGE> 9
with basic and diluted earnings per share. The Company does not expect
the adoption of SFAS 128 to have a material impact on its financial
condition or results of operations.
4 During the three months ended September 30, 1997, the Company repaid
notes payable to related parties which had principal balances
aggregating $4.73 million and accrued and unpaid interest of $512,000
for $4.47 million in cash; resulting in a gain on retirement of debt of
$774,740. The gain is included in "gain on extinguishment of debt" in
the consolidated statements of operations for the three and six-months
ended September 30, 1997. See also note 7.
5 In September 1997, the Company repurchased 197 shares of its Series C
Preferred Stock having an aggregate value of $2.187 million for $1.576
million in cash. The $2.187 million amount is comprised of stated value
of $1.971 million, $98,000 of an accrued 5% premium, and accrued
accretion of $118,000.
6 On July 18, 1997, the Company sold all of the issued and outstanding
shares (the "Shares") of capital stock of Starcom Mediatech, Inc. to
Digital Generation Systems, Inc., a California corporation ("Digital").
The initial consideration paid by Digital for the Shares consisted of
the following: (i) $14.0 million in cash; (ii) 324,355 restricted shares
of Digital Common Stock valued at $1.6 million; (iii) Digital's
Subordinated Promissory Note, dated July 18, 1997 ("Subordinated Note"),
in the principal amount of $2.2 million; and (iv) assumption of an
aggregate of $2.2 million owed by the Company to Thomas H. Baur,
Chairman of Mediatech and a director and stockholder of the Company. The
Subordinated Note bears interest at 9% per annum and is payable in 13
equal quarterly installments of principal and interest, commencing on
October 1, 1997. All unpaid principal and accrued interest on the
Subordinated Note is due and payable on October 1, 2001. The Purchase
Agreement provided for an adjustment to the purchase price based on
certain financial measurements as of July 18, 1997. As a result of those
financial measurements, on October 27, 1997, the parties entered into an
agreement whereby the purchase price was reduced by $625,000. The
parties agreed that $25,000 of the purchase price adjustment was
immediately payable in cash and that the Subordinated Note be reduced by
$600,000. Accordingly, the originally issued note of $2.2 million was
cancelled and a new note of $1.6 million was issued (the "New Note").
The New Note is payable in installments of $150,000 plus accrued
interest on December 31, 1997, June 30, 1998, December 31, 1998 and June
30, 1999, with the remaining installments payable on the last day of
each successive calendar quarter thereafter until fully paid on March
31, 2001. The Company recorded a gain with respect to this transaction
of $10.4 million and is included in other income in the consolidated
statements of operations.
7 During July 1997, the Company's Chief Executive Officer left the
Company. The former Chief Executive Officer was paid a severance amount
of $495,527. In addition, the former Chief Executive Officer was paid
$348,310 in connection with two related party notes owed to him by
Company. At the time of payment, the related party notes had an
aggregate principal balance of $366,452 and accrued interest of $43,325.
The Company realized a gain of $61,467 with respect to the payment, and
the amount of gain is included in "gain on extinguishment of debt" in
the consolidated statements of operations. The Chairman of the Board
subsequently became the Chief Executive Officer as well as retaining the
Chairman's duties. Effective August 1, 1997, the Company and the new
Chief Executive Officer entered into an employment agreement whereby the
Chief Executive Officer is to be paid a salary of $20,000 per month plus
a car allowance of $850 per month. In year two, the salary increases to
$25,000 per month, and in year three, the salary increases to $30,000
per month. The employment agreement also provides for other customary
employee benefits.
8 During the three-months ended September 30, 1997, the Company purchased
and cancelled 265,745 shares of its common stock for $550,000 in cash.
7
<PAGE> 10
9 During the three and six-months ended September 30, 1997, the Company
sold its interest in equity securities of LIMT AB. The Company acquired
the equity securities in LIMT AB in connection with the sale of the
Company's 66.67% interest in its subsidiary Channelmatic to LIMT AB for
cash, notes, and stock in March 1997. The Company acquired the equity
securities for $2.8 million and realized $2.3 million in cash on sale of
the equity securities. A corresponding $501,607 loss on sale of equity
securities is recorded in other income (expense) in the consolidated
statements of operations.
10 On October 1, 1997, the Company entered into an agreement with the
holder of two convertible notes in the principal amount of $4.285
million, whereby the Company paid the holder $4.675 million in cash on
October 1, 1997 and issued a promissory note for $825,000, interest
payable quarterly in arrears beginning December 31, 1997 at 6% per
annum, and a balloon payment due on September 30, 1998. The convertible
notes were originally issued in February and May 1996, whereby the
holder of the notes had rights to convert the notes and any accrued and
unpaid interest into common stock at 82% of an average market price
calculation. During fiscal year ended March 31, 1997, the Company
recorded a non-cash interest expense charge of $847,000 related to the
18% securities yield and recorded the offset of the charge to
stockholders' equity. At September 30, 1997, included in Accounts
Payable and Accrued Expenses is $1.215 million which is comprised of
accrued interest of $416,000 and $799,000 of deferred interest which was
reclassified from stockholders' equity.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For the three and six-months ended September 30, 1996, the operations of the
Company were conducted solely through its subsidiaries Starcom Mediatech, Inc.
and Channelmatic. In addition, included in the operations of the Company for the
six-months ended September 30, 1996 were five months of operations of CCMS and
four months of operations of Enterprise. Included in the operations of the
Company for the three-months ended September 30, 1996, were three months
operations of Enterprise and CCMS. The results of operations for the
three-months ended September 30, 1997 include the operations of the
above-mentioned subsidiaries excluding Channelmatic, which was sold on March 24,
1997 and includes the operations of Starcom Mediatech, Inc. through the date in
which it was sold, July 18, 1997.
Except for historical information contained herein, statements in this report
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecast results. Reference is made to the risks identified
elsewhere in this Report and in the Company's other reports and registration
statements on file with the Securities and Exchange Commission.
Revenue
The decrease in revenue from the prior periods was primarily a net result of the
sales attributable to the subsidiaries sold in March and July 1997. It is
anticipated that revenue in future periods for the Company on a consolidated
basis will remain fairly consistent with the three month period ended September
30, 1997 as that three-month period is represented primarily by the remaining
operating entities Enterprise and CCMS.
Cost of Sales
The decrease in cost of sales from the prior periods was primarily a net result
of the cost of sales attributable to the subsidiaries sold in March and July
1997. It is anticipated that cost of sales in future periods for the Company on
a consolidated basis will remain fairly consistent with the three month period
ended September 30, 1997 as that three-month period is represented primarily by
the remaining operating entities Enterprise and CCMS.
Selling, General and Administrative
The decrease in selling, general and administrative from the prior periods was
primarily a net result of the selling, general and administrative expenses
attributable to the subsidiaries sold in March and July 1997. It is anticipated
that selling, general and administrative in future periods for the Company on a
consolidated basis will remain fairly consistent with the three month period
ended September 30, 1997 as that three-month period is represented primarily by
the remaining operating entities Enterprise and CCMS.
9
<PAGE> 12
Depreciation and Amortization
The decrease in depreciation and amortization from the prior periods was
primarily a net result of the depreciation and amortization attributable to the
subsidiaries sold in March and July 1997. It is anticipated that depreciation
and amortization in future periods for the Company on a consolidated basis will
remain fairly consistent with the three month period ended September 30, 1997 as
that three-month period is represented primarily by the remaining operating
entities Enterprise and CCMS.
Corporate
Corporate overhead represents general and administrative expenses related to the
administration of IndeNet, exclusive of expenses of the subsidiaries. These
expenses for three and six-months ended September 30, 1997 compared to the
comparative prior period decreased by $186,816 and $381,699. The decrease is due
primarily to a reduction of personnel and marketing costs. Future periods'
corporate expenses overall are expected to decrease relative to the current
period due to additional personnel reductions. Some additional costs are may be
incurred in connection with the anticipated corporate office move from Los
Angeles, California to Detroit, Michigan.
Interest Income
Interest income did not change significantly. Interest income in future periods
is expected to fluctuate based on cash balances.
Interest Expense
Interest expense decreased $164,056 from $528,872 to $364,816 for the
three-months ended September 30, 1997 compared to the comparable prior period
and increased $36,393 from $861,735 to $898,128 for the six-months ended
September 30, 1997 compared to the comparable prior period due to the exclusion
of interest expense of the companies sold during March and July 1997; offset by
interest incurred on convertible debt. Interest expense is expected to decrease
in future periods due to the future reduction of current debt obligations.
Income Tax Expense
Income tax expense for the three and six-months ended September 30, 1997
represents minimum state taxes paid for the various states in which the Company
does business.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had $10.2 million in cash and cash
equivalents and a working capital deficit of $2.0 million. During the six-months
ended September 30, 1997, cash and cash equivalents increased $7.3 million. The
Company used $361,697 in operations. The Company generated $13.3 million in
investing activities, primarily from the sale of subsidiary and proceeds from
the sale of equity securities; net of purchases of capital expenditures,
capitalized software costs, and purchase of customer list. The Company used $5.6
million in financing activities, primarily for debt repayments and repurchase of
common and preferred stock.
10
<PAGE> 13
On October 1, 1997, the Company entered into an agreement with the holder of two
convertible notes whereby the Company paid the holder $4.7 million in cash on
October 1, 1997 and issued a promissory note for $825,000, interest payable
quarterly in arrears beginning December 31, 1997 at 6% per annum, and a balloon
payment due on September 30, 1998.
Based on the projected operations of the Company's remaining subsidiaries
(Enterprise and CCMS), the Company currently believes that its consolidated
operations will generate sufficient cash to fund the Company's working capital
needs for the next twelve months. Such projections are based on financial
information that the Company has obtained from its remaining subsidiaries and is
based on projected benefits to be derived from the integration of the operations
of the subsidiaries and the reorganization and relocation of IndeNet. However,
no assurance can be given that the projected operations or projected integration
benefits will be realized or that the Company's operations will be sufficient to
fund the Company's working capital needs.
Any future acquisitions will be funded from future equity and/or debt financing.
Payments on the remaining outstanding promissory notes are expected from cash
flows from Enterprise and CCMS. Corporate costs and its obligations are also
expected to be funded from the operations of Enterprise and CCMS. There is no
assurance given that anticipated future capital financings will be successful or
that funds will be available from IndeNet's subsidiaries to meet capital
requirements.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 1997, a lawsuit was filed against the Company with the Superior
Court of the State of California and for the County of Los Angeles by Simitar
Entertainment, a Minnesota corporation ("Simitar"). The suit also names Starcom
Television Services, a former subsidiary of the Company and Starcom
Entertainment, Inc., an unaffiliated company. The complaint alleges breach of
contract and calls for an accounting, imposition of a constructive trust and the
appointment of a receiver. Simitar is asking for $600,000 plus costs. The
Company believes that it has meritorious defenses and intends to vigorously
defend itself in the lawsuit
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
27-Financial Data Schedule
(b) None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned hereunto duly authorized.
INDENET, INC.
Signed By: /s/ Richard J. Parent
-------------------------------------------
Richard J. Parent
Chief Financial Officer and Corporate
Secretary (Authorized Officer and Principal
Financial and Chief Accounting Officer)
12
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
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