<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 1996
KATZ DIGITAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27934 13-3377693
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
Twenty-One Penn Plaza
New York, New York 10001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 594-4800
1
<PAGE> 2
KATZ DIGITAL TECHNOLOGIES, INC.
INDEX TO FORM 8-K/A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
OCTOBER 15, 1996
ITEMS IN FORM 8-K/A
Page
----
Facing page 1
Item 7. Financial Statements and Exhibits. 3
Signatures 4
Exhibit Index 5
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On August 14, 1996, Katz Digital Technologies, Inc. (the "Company")
filed a Current Report on Form 8-K with respect to the August 1, 1996
acquisition of certain of the assets of the Sarabande Press, Inc. ("Sarabande").
Such Form 8-K was filed without the financial statements and pro forma financial
information required by Items 310(c) and (d) of Regulation S-B, as it was
impractical to do so at that time. This Current Report on Form 8-K/A provides
such required information.
(a) Financial Statements of the Business Acquired.
Following, as Exhibit 7(a), are the audited financial statements of
Sarabande as of December 31, 1995 and for the two years then ended and the
unaudited balance sheet as of June 30, 1996 and the unaudited statements of
earnings for the six months ended June 30, 1995 and 1996.
(b) Pro Forma Financial Information
Following as Exhibit 7(b) are a pro forma unaudited consolidated
condensed balance sheet as of June 30, 1996, and pro forma unaudited
consolidated condensed statements of earnings for the year ended December 31,
1995 and for the six months ended June 30, 1996, giving effect to the Company's
acquisition on August 1, 1996 of certain of the assets of Sarabande.
3
<PAGE> 4
SIGNATURES
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 hereunto duly authorized.
Dated: October 15, 1996
KATZ DIGITAL TECHNOLOGIES, INC.
By:/s/ Gary Katz
----------------------------------
Gary Katz
Chairman and Chief Executive Officer
4
<PAGE> 5
KATZ DIGITAL TECHNOLOGIES, INC.
EXHIBIT INDEX TO FORM 8-K/A
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<C> <S>
7(a) Audited Financial Statements of The Sarabande Press, Inc.
7(b) Pro Forma Unaudited Condensed Financial Statements
</TABLE>
2
<PAGE> 1
EXHIBIT 7(a)
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Stockholders
THE SARABANDE PRESS, INC.
We have audited the accompanying balance sheets of The Sarabande Press,
Partnership at December 31, 1994 and The Sarabande Press, Inc. at December 31,
1995 and the statements of earnings, stockholders' and partners' equity, and
cash flows for each of the two years in the period ended December 31, 1995.
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 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 financial position of The Sarabande Press,
Partnership as of December 31, 1994 and The Sarabande Press, Inc. as of December
31, 1995 and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
- -----------------------------------
GRANT THORNTON LLP
New York, New York
July 10, 1996
<PAGE> 2
The Sarabande Press, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------ JUNE 30,
ASSETS 1994 1995 1996
-------- -------- ------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 90,856 $ 59,067 $196,268
Notes receivable 14,334
Accounts receivable 282,025 312,668 377,083
Prepaid expenses and other current assets 3,936 2,213 10,854
-------- -------- --------
Total current assets 391,151 373,948 584,205
PROPERTY AND EQUIPMENT - NET (Note C) 115,194 80,245 111,868
OTHER ASSETS 20,091 50,519 30,107
-------- -------- --------
$526,436 $504,712 $726,180
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 39,948 $ 71,520 $140,014
Current portion of obligations under capital
leases (Note D) 38,645 17,754 13,526
Income taxes payable 15,748 21,510 10,519
Due to stockholder 147,993 56,273
-------- -------- --------
Total current liabilities 94,341 258,777 220,332
Obligations under capital leases, net of current
portion (Note D) 29,039 11,500 15,050
-------- -------- --------
Total liabilities 123,380 270,277 235,382
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock; 200 shares issued and outstanding,
no par value -- 5,000 5,000
Retained earnings 229,435 485,798
Partners' equity 403,056
-------- -------- --------
Total stockholders' equity 403,056 234,435 490,798
-------- -------- --------
$526,436 $504,712 $726,180
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
The Sarabande Press, Inc.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Year ended December 31, JUNE 30,
------------------------------ ----------------------------
1994 1995 1995 1996
----------- ------------ ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $2,406,511 $2,491,600 $1,292,715 $1,243,498
Cost of goods sold 1,296,673 1,791,642 810,797 762,007
---------- ---------- ---------- ----------
Gross profit 1,109,838 699,958 481,918 481,491
Operating expenses
Selling, general and administrative 382,795 437,223 195,388 203,657
---------- ---------- ---------- ----------
Total operating expenses 382,795 437,223 195,388 203,657
Operating income 727,043 262,735 286,530 277,834
---------- ---------- ---------- ----------
Earnings before provision for
income taxes 727,043 262,735 286,530 277,834
Income tax expense (Note B) 29,000 33,300 26,200 21,471
---------- ---------- ---------- ----------
NET EARNINGS $ 698,043 $ 229,435 $ 260,330 $ 256,363
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
The Sarabande Press, Inc.
STATEMENT OF STOCKHOLDERS' AND PARTNERS' EQUITY
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Common stock
---------------------- Retained Partners'
Shares Amount earnings equity Total
------ ------ -------- ------ -----
<S> <C> <C> <C> <C> <C>
Partners' equity at December 31, 1993 $ 106,080 $ 106,080
Net earnings 698,043 698,043
Partners' drawings (401,067) (401,067)
--------- --------- --------- --------- ---------
Partners' equity at December 31,
1994 403,056 403,056
Conversion to S Corporation 200 $ 5,000 (5,000)
Net earnings $ 229,435 229,435
Distributions to stockholders (398,056) (398,056)
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 200 $ 5,000 $ 229,435 $ -- $ 234,435
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
The Sarabande Press, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Year ended December 31, JUNE 30,
------------------------------ --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 698,043 $ 229,435 $ 260,330 $ 256,363
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 87,282 137,902 49,035 12,373
Increase (decrease) in cash flows
from changes in operating
assets and liabilities
Accounts receivable (78,627) (30,643) (118,209) (64,414)
Other current assets 6,714 16,056 (12,914) (8,641)
Other assets (1,925) (30,428) (12,010) 20,412
Accounts payable and accrued
expenses (15,731) 23,672 34,557 60,646
Income taxes payable (5,287) 13,663 28,747 (3,144)
Losses on disposal of property,
plant and equipment 16,106 14,312
--------- --------- --------- ---------
Net cash provided by operating activities 706,575 373,969 229,536 273,595
--------- --------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment (164,615) (117,265) (62,990) (43,996)
--------- --------- --------- ---------
Net cash used in investing activities (164,615) (117,265) (62,990) (43,996)
--------- --------- --------- ---------
Cash flows from financing activities
Distributions to stockholders (401,067) (398,056) (398,056)
Payments of obligations under capital leases,
net 15,024 (38,430) (24,836) (678)
Advances from shareholders 147,993 198,723 (91,720)
Due to partner (71,592) -- -- --
--------- --------- --------- ---------
Net cash used in financing activities (457,635) (288,493) (224,169) (92,398)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 84,325 (31,789) (57,623) 137,201
Cash - beginning of period 6,531 90,856 90,856 59,067
--------- --------- --------- ---------
Cash - end of period $ 90,856 $ 59,067 $ 33,233 $ 196,268
========= ========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for
Interest $ 6,953 $ 2,546 $ 2,749 $ 1,454
Income taxes $ 18,539 $ 28,200 $ 13,200 $ 32,462
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
The Sarabande Press, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
NOTE A - DESCRIPTION OF BUSINESS
The Sarabande Press, Inc. (the "Company") provides a broad range of digital
prepress and digital short-run printing services to produce full-color and
black and white printed materials to a wide variety of market segments,
principally in the New York City area.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
Revenue is recognized upon the shipment of finished merchandise to
customers.
2. Income Taxes
Beginning in the year ended December 31, 1995, the Company elected S
Corporation status for Federal and New York state income tax purposes.
Prior to the election, the Company was a partnership; accordingly, no
provision has been made in the accompanying financial statements for
Federal and certain state income taxes, since the income of the Company
is taxable directly to its stockholders. The Company is, however,
liable for certain state and local taxes, which are reflected in the
accompanying financial statements.
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of the fixed
assets is computed principally by the straight-line method for
financial reporting purposes over 1-5-year periods. Capital leases are
recorded at the lower of fair market value or the present value of
future minimum lease payments. These leases are amortized on the
straight-line method over 3-5 years.
6
<PAGE> 7
The Sarabande Press, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
NOTE B (CONTINUED)
4. Concentrations and Fair Value of Financial Instruments
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of trade accounts receivable. The
Company provides credit, in the normal course of business, to a
significant number of advertising firms in New York City. The Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable exposure is
limited. The carrying values of financial instruments potentially
subject to valuation risk (principally consisting of accounts
receivable and accounts payable) approximate fair market value.
5. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could affect those
estimates.
6. Unaudited Financial Statements
The financial statements at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of the Company,
the unaudited financial statements at June 30, 1996 and for the six
months ended June 30, 1995 and 1996, include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations for
such periods. Results of operations for the six months ended June 30,
1996 are not necessarily indicative of results to be expected for the
full year.
7
<PAGE> 8
The Sarabande Press, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Furniture and fixtures $ 29,424 $ 34,202
Hardware 341,111 226,879
Software 93,159 138,359
-------- --------
463,694 399,440
Less accumulated depreciation and
amortization 348,500 319,195
-------- --------
$115,194 $ 80,245
======== ========
</TABLE>
Depreciation and amortization expense aggregated $87,282 and $137,902 for
the years ended December 31, 1994 and 1995, respectively.
NOTE D - OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
The Company has entered into various capital lease agreements for computers
and other equipment, valued at $80,495 during 1994 and 1995. The leases
expire at various times through 2000. Accumulated amortization amounted to
$15,107 and $20,774 for 1994 and 1995, respectively. The related future
minimum lease payments, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Capital
leases
------
<S> <C>
Fiscal year
1996 $20,059
1997 6,360
1998 6,360
-------
Net minimum lease payments 32,779
Amount representing interest 3,525
-------
Obligation under capital lease agreements $29,254
=======
</TABLE>
8
<PAGE> 9
The Sarabande Press, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
NOTE D (CONTINUED)
<TABLE>
<S> <C>
Current portion $17,754
Long-term portion 11,500
-------
$29,254
=======
</TABLE>
NOTE E - COMMITMENTS AND CONTINGENCIES
1. Operating Lease Commitments
The Company leases office space and various equipment under operating
lease arrangements which run through 2008. The rent expense under these
operating leases for the years ended December 31, 1994 and 1995 was
$105,247 and $88,460, respectively. The future minimum rentals for
operating leases are as follows:
<TABLE>
Amount
------
<S> <C>
Year ending December 31,
1996 $ 84,610
1997 88,518
1998 92,059
1999 95,741
2000 99,571
Thereafter 8,324
--------
$468,823
========
</TABLE>
NOTE F - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In 1995, the Financial Accounting Standards Board issued 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 No.
121"), which provides guidance on when to assess and how to measure
impairment of long-lived assets, certain intangibles and goodwill related
to those assets
9
<PAGE> 10
The Sarabande Press, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995 and 1996
NOTE F (CONTINUED)
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Financial Accounting Standards Board
also issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which gives
companies a choice of the method of accounting used to determine
stock-based compensation. Companies may account for such compensation
either by using the intrinsic value-based method provided in APB Opinion
25, "Accounting for Stock Issued to Employees" ("APB No. 25") or the fair
market value-based method provided in SFAS No. 123. These statements are
effective for financial statements for fiscal years beginning after
December 15, 1995. As of January 1, 1996, the Company adopted SFAS No. 121
and SFAS No. 123. The adoption had no effect on the Company. The Company
intends to continue to use the intrinsic value-based method provided in APB
No. 25 to determine stock-based compensation, and, therefore the sole
effect of the adoption of SFAS No. 123 will be the obligation to comply
with the new disclosure requirements provided thereunder.
NOTE G - SALE OF THE COMPANY (UNAUDITED)
On August 1, 1996, Katz Digital Technologies, Inc. acquired the customer
list, goodwill, production equipment, software and other assets of the
Company. The selling price could be up to a maximum of approximately
$1,900,000 based on targeted sales, for the year ended July 31, 1997, to
the customers acquired by Katz Digital Technologies, Inc.
10
<PAGE> 1
EXHIBIT 7(b)
KATZ DIGITAL TECHNOLOGIES, INC.
PRO FORMA UNAUDITED CONDENSED
FINANCIAL STATEMENTS
The following pro forma unaudited condensed balance sheet has been prepared by
taking the June 30, 1996 balance sheets of Katz Digital Technologies, Inc. (the
"Company") and The Sarabande Press, Inc. ("Sarabande") and giving effect to the
acquisition of certain of the assets of Sarabande by the Company as if it
occurred as of June 30, 1996. The pro forma condensed balance sheet has been
prepared for information purposes only and does not purport to be indicative of
the financial condition that necessarily would have resulted had this
transaction taken place at June 30, 1996.
The following pro forma unaudited condensed statements of earnings for the year
ended December 31, 1995 and for the six months ended June 30, 1996 reflect a
provision for income taxes based upon pro forma pretax earnings as if the
Company had been subject to Federal and additional state and local income taxes
which it was not subject to because of its income tax status as an S Corporation
and give effect to the Company's acquisition of certain of the assets of
Sarabande as if it occurred as of the beginning of the respective periods. The
revenues and results of operations included in the following pro forma unaudited
condensed statements of operations are not considered necessarily to be
indicative of anticipated results of operations for periods subsequent to the
transaction, nor are they considered necessarily to be indicative of the results
of operations for the periods specified had the transaction actually been
completed at the beginning of each respective period.
These financial statements should be read in conjunction with the notes to the
pro forma unaudited condensed financial statements, which follow the financial
statements of the Company, and related notes thereto (as previously filed), and
the financial statements of Sarabande and related notes thereto, included
herewith.
11
<PAGE> 2
KATZ DIGITAL TECHNOLOGIES, INC.
UNAUDITED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
adjustments
Katz Sarabande increase/ Pro
historical historical (decrease) forma
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Assets
Cash $ 5,247,697 $196,268 $(1,000,000) (a) $ 4,247,697
(196,268) (b)
Certificate of deposit 233,600 233,600
Accounts receivable, net 3,086,092 377,083 (377,083) (b) 3,086,092
Work-in-process inventory 61,303 61,303
Prepaid expenses and other
current assets 211,232 10,854 222,086
----------- -------- ----------- -----------
Total current assets 8,839,924 584,205 (1,573,351) 7,850,778
Property and equipment 3,627,080 111,868 14,532 (c) 3,753,480
Deferred pension costs 108,664 108,664
Goodwill 986,215 (c) 986,215
Other assets 109,571 30,107 139,678
----------- -------- ----------- -----------
Total assets $12,685,239 $726,180 $ (572,604) $12,838,815
=========== ======== =========== ===========
</TABLE>
12
<PAGE> 3
KATZ DIGITAL TECHNOLOGIES, INC.
UNAUDITED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
adjustments
Katz Saraband increase/ Pro
historical historical (decrease) forma
---------- ---------- -------- -----
<S> <C> <C> <C> <C>
Liabilities and stockholders' equity
Accounts payable and accrued
expenses $ 994,884 $ 140,014 $(140,014) (b) $ 1,119,884
125,000 (a)
Current portion of obligations
under capital lease 704,834 13,526 718,360
Income taxes payable 243,554 10,519 (10,519) (b) 243,554
Deferred taxes payable 130,000 130,000
Due to stockholder 850,911 56,273 (56,273) (b) 850,911
----------- ----------- ---------- -----------
Total current liabilities 2,924,183 220,332 (81,806) 3,062,709
Deferred taxes payable 601,000 601,000
Other deferred liabilities 215,867 215,867
Obligations under capital leases,
net of current portion 1,755,204 15,050 1,770,254
----------- ----------- ---------- -----------
Total liabilities 5,496,254 235,382 (81,806) 5,649,830
Stockholders' equity
Preferred stock -- -- -- --
Common stock 4,425 5,000 (5,000) (d) 4,425
Additional paid-in capital 6,860,267 6,860,267
Retained earnings 324,293 485,798 (485,798) (d) 324,293
----------- ----------- ---------- -----------
Total stockholders' equity 7,188,985 490,798 (490,798) 7,188,985
----------- ----------- ---------- -----------
Total liabilities and
stockholders' equity $12,685,239 $ 726,180 $(572,604) $12,838,815
=========== =========== ========== ===========
</TABLE>
13
<PAGE> 4
KATZ DIGITAL TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
adjustments Pro
Katz Sarabande increase/ forma
historical historical (decrease) results
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 10,643,738 $ 2,491,600 $ 13,135,338
Cost of goods sold 4,761,068 1,791,642 $ (96,000) (a) 6,456,710
------------ ------------ ------------ ------------
Gross profit 5,882,670 699,958 (96,000) 6,678,628
Operating expenses
Selling, general and administrative 3,864,045 437,223 98,622 (b) 4,399,890
------------ ------------ ------------ ------------
Total operating expenses 3,864,045 437,223 98,622 4,399,890
------------ ------------ ------------ ------------
Operating income 2,018,625 262,735 (2,622) 2,278,738
Interest expense, net 105,379 50,000 (c) 155,379
------------ ------------ ------------ ------------
Earnings before provision for
income taxes 1,913,246 262,735 (52,622) 2,123,359
Provision for income taxes
Current 202,503 33,300 (5,788) (d) 230,015
Deferred 2,000 2,000
------------ ------------ ------------ ------------
204,503 33,300 (5,788) 232,015
------------ ------------ ------------ ------------
Net earnings $ 1,708,743 $ 229,435 $ (46,834) $ 1,891,344
============ ============ ============ ============
Pro forma data
Historical income before provision
for income taxes $ 1,913,246 $ 262,735 $ (52,622) $ 2,123,359
Provision for income taxes 936,905 33,300 69,655 (e) 1,039,860
------------ ------------ ------------ ------------
Net earnings $ 976,341 $ 229,435 $ (122,277) $ 1,083,499
============ ============ ============ ============
Net earnings per share $ 0.33 $ 0.36
============ ============
Weighted average shares
outstanding 2,990,644 2,990,644
============ ============
</TABLE>
14
<PAGE> 5
KATZ DIGITAL TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
adjustments Pro
Katz Sarabande increase/ forma
historical historical (decrease) results
---------- ---------- -------- -------
<S> <C> <C> <C> <C>
Net sales $7,298,354 $1,243,498 $8,541,852
Cost of goods sold 3,618,637 762,007 $ 9,000 (a) 4,389,644
---------- ---------- --------- ----------
Gross profit 3,679,717 481,491 9,000 4,152,208
Operating expenses
Selling, general and administrative 2,774,855 203,657 49,311 (b) 3,027,823
---------- ---------- --------- ----------
Total operating expenses 2,774,855 203,657 49,311 3,027,823
---------- ---------- --------- ----------
Operating income 904,862 277,834 (58,311) 1,124,385
Interest expense, net 31,111 25,000 (c) 56,111
---------- ---------- --------- ----------
Earnings before provision for
income taxes 873,751 277,834 (83,311) 1,068,274
Provision for income taxes
Current 1,020,904 21,471 (28,326) (d) 1,014,049
---------- ---------- --------- ----------
1,020,904 21,471 (28,326) 1,014,049
---------- ---------- --------- ----------
Net (loss) earnings $ (147,153) $ 256,363 $ (54,985) $ 54,225
========== ========== ========= ==========
Pro forma data
Historical income before
provision for income taxes $ 873,751 $ 277,834 $ (83,311) $1,068,274
Provision for income taxes 393,188 21,471 66,064 (e) 480,723
---------- ---------- --------- ----------
Net earnings $ 480,563 $ 256,363 $(149,375) $ 587,551
========== ========== ========= ==========
Net earnings per share $ 0.23 $ 0.16
========== ==========
Weighted average shares
outstanding 3,754,955 3,754,955
========== ==========
</TABLE>
15
<PAGE> 6
KATZ DIGITAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA UNAUDITED
CONDENSED FINANCIAL STATEMENTS
The accompanying pro forma unaudited condensed balance sheet and statements of
earnings present the financial position and results of operations of Katz
Digital Technologies, Inc. (the "Company") giving effect to the acquisition on
August 1, 1996 of certain of the assets of The Sarabande Press, Inc.
("Sarabande").
The purchase price for the acquired assets (the "Purchase Price"), which will
not exceed $1,900,000, is subject to adjustment based on the performance of
Sarabande. At closing, the Company paid Sarabande one million dollars
($1,000,000) in cash. The balance of the purchase price, which is subject to
adjustment based on the gross revenue of Sarabande in the twelve (12) months
following the acquisition and has been accounted for as contingent purchase
price for financial accounting purposes, consisted of (i) a five hundred
thousand dollar ($500,000) promissory note with interest at the prime rate,
payable to Sarabande, and convertible at Sarabande's option into shares of the
Company's common stock (the "Note"), and (ii) 78,745 shares (valued at $400,000)
of the Company's common stock (the "Shares"). If the sales of Sarabande are less
than the minimum provided for in the purchase agreement, first the number of
Shares, and then the principal amount of the Note, will be reduced.
The pro forma financial statements reflect the $1,000,000 in cash paid at the
closing and the $900,000 contingent purchase price has not been given effect in
the pro forma unaudited condensed financial statements and will be recorded when
the contingency is resolved. Additionally, the pro forma statements of
operations reflect a provision for income taxes not provided for in the
historical financial statements because of the Company's status as an S
Corporation.
Had the contingent amounts been recorded, notes payable and stockholders' equity
would have increased by $500,000 and $400,000, respectively, with a
corresponding increase in goodwill of $900,000. In addition, pro forma earnings
before income taxes and pro forma net earnings after pro forma income taxes
would have decreased by $131,000 and $67,000, respectively, for the year ended
December 31, 1995 and $65,000 and $35,000, respectively, for the six months
ended June 30, 1996, respectively. In addition, pro forma earnings per share
would have decreased by $.03 and $.01 for the year ended December 31, 1995 and
the six months ended June 30, 1996, respectively.
The adjustments below were prepared based on data currently available and in
some cases are based on estimates or approximations. It is possible that the
actual amounts to be recorded may have an impact on the results of operations
and the balance sheet different from that reflected in the accompanying pro
forma unaudited condensed financial statements. It is therefore possible that
the entries presented below will not be the amounts actually recorded at the
closing date.
16
<PAGE> 7
KATZ DIGITAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA UNAUDITED
CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
Balance Sheet at June 30, 1996
(a) To record the acquisition of certain of the assets of Sarabande for a
purchase price of $1,125,000, determined as follows:
<TABLE>
<S> <C>
Purchase price (cash) $1,000,000
Acquisition and related fees (accounts payable) 125,000
----------
$1,125,000
==========
</TABLE>
(b) To eliminate assets and liabilities not included in the acquisition
(c) To allocate purchase price to assets acquired and excess purchase price
to goodwill
(d) To eliminate equity, additional paid-in capital and retained earnings of
Sarabande
Statements of Earnings for the Year Ended December 31, 1995 and for the Six
Months Ended June 30, 1996
(a) To record depreciation for the acquired fixed assets and eliminate
depreciation on historical property and equipment
(b) To amortize goodwill based upon a ten-year life
(c) To eliminate interest income received on $1,000,000
(d) To record the tax effect of pro forma adjustments
(e) To record additional tax provision on pro forma adjustments and Sarabande
as if it were a C Corporation
17
