<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): October 14, 1997
(July 31, 1997)
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 14, 1997
ITEMS IN FORM 8-K/A
Page
Facing page
Item 7. Financial Statements and Exhibits. 3
Signatures
Exhibit Index
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On August 13, 1997, Katz Digital Technologies, Inc. (the "Registrant")
filed a Current Report on Form 8-K with respect to the July 31, 1997 merger of
Advanced Digital Services, Inc. ("ADSI") with and into Katz Digital Acquisition,
Inc., a wholly-owned subsidiary of the Registrant ("KDAI"), pursuant to a Plan
and Agreement of Merger (the "Merger Agreement") by and among the Registrant,
ADSI, the former shareholders of ADSI (the "ADSI Shareholders") and KDAI (the
"Merger"). 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 permitted by sections (a) and (b) of Item 7 of Form 8-K. This Current Report
on Form 8-K/A provides such requisite financial information.
(a) Financial Statements of ADSI.
Following are the audited financial statements of ADSI for the years
ended June 30, 1997 and 1996 and the unaudited financial statements of ADSI for
the six months ended June 30, 1997 and 1996.
(b) Pro Forma Financial Information
Following the financial information detailed in Item 7(a) above, is a
pro forma unaudited condensed balance sheet as of June 30, 1997, and pro forma
unaudited condensed statements of earnings for the year ended December 31, 1996
and for the six months ended June 30, 1997.
3
<PAGE> 4
Advanced Digital Services, Inc.
Financial Statements
June 30, 1997 and 1996
<PAGE> 5
ADVANCED DIGITAL SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
Page
Independent Auditors' Report..................................... 1
Financial Statements
Balance Sheets................................................ 2
Statements of Earnings and Retained Earnings.................. 3
Statements of Cash Flows...................................... 4
Notes to the Financial Statements............................. 5-8
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Advanced Digital Services, Inc.
We have audited the accompanying balance sheets of Advanced Digital
Services, Inc. as of June 30, 1997 and 1996 and the related statements of
earnings and retained earnings and cash flows for the years then ended. 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 Advanced Digital
Services, Inc. as of June 30, 1997 and 1996, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
August 22, 1997
<PAGE> 7
ADVANCED DIGITAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------
1997 1996
----------- -----------
Assets
Current Assets
<S> <C> <C>
Cash $ 159,358 $ 98,020
Accounts receivable, net of allowance for doubtful accounts of $200,000
and $0 for 1997 and 1996, respectively 835,825 661,600
Other current assets 19,032 --
----------- -----------
Total Current Assets 1,014,215 759,620
Marketable investment securities 57,800 36,686
Equipment, net of accumulated depreciation of $35,327 and
$13,540 for 1997 and 1996, respectively 74,630 54,500
----------- -----------
Total Assets 1,146,645 850,806
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 367,629 63,374
Pension and profit sharing contributions payable 97,333 54,648
Payroll and sales taxes payable 25,534 42,310
Current maturities of long-term debt 11,904 10,802
Income taxes payable 85,273 5,020
Deferred income taxes payable 214,268 269,437
----------- -----------
Total Current Liabilities 801,941 445,591
Long-term debt, excluding current maturities 27,023 40,112
----------- -----------
Total Liabilities 828,964 485,703
----------- -----------
Stockholders' Equity
Common stock, $1 par value, 100 shares authorized, 69.3 shares and 54.6
shares issued, 66 shares and 54.6 shares outstanding at June 30, 1997 and
1996, respectively 69 55
Additional paid in capital 53,945 53,945
Treasury stock, 3.3 shares common stock at cost (72,484) --
Retained earnings 335,291 311,923
Unrealized gain (loss) on marketable investment securities 860 (820)
----------- -----------
Total Stockholders' Equity 317,681 365,103
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,146,645 $ 850,806
=========== ===========
</TABLE>
See notes to the financial statements.
4
<PAGE> 8
ADVANCED DIGITAL SERVICES, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Sales $ 2,451,852 $ 1,753,343
Total Cost of Sales 1,004,868 684,184
----------- -----------
Gross Profit 1,446,984 1,069,159
Total Selling, General and Administrative Expenses 665,104 254,464
----------- -----------
Income From Operations Before Officers' Salaries 781,880 814,695
Officers' salaries and related payroll taxes 676,110 220,820
----------- -----------
Income From Operations 105,770 593,875
Other Income (Expenses)
Interest income 24,132 8,101
Rental income 1,125 1,250
Management fee -- (12,153)
Interest expense (5,316) (4,693)
Failed venture expense (27,075) --
Professional Fee - acquisition related (45,164) --
----------- -----------
Total Other Income (Expense) (52,298) (7,495)
----------- -----------
Income Before Income Taxes 53,472 586,380
Provision for income taxes 30,104 274,457
----------- -----------
Net Income $ 23,368 311,923
Retained Earnings - Beginning of Year 311,923 --
----------- -----------
Retained Earnings - End of Year $ 335,291 $ 311,923
=========== ===========
</TABLE>
See notes to the financial statements.
5
<PAGE> 9
ADVANCED DIGITAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1997 1996
--------- ---------
Cash Flows From Operating Activities
<S> <C> <C>
Net Income $ 23,368 $ 311,923
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation 21,787 13,540
Deferred income taxes (55,169) 269,437
Provision for losses on accounts receivable 200,000 --
Bad debt expense 7,926 --
Decreases (Increases) in Assets
Accounts receivable (382,151) (661,600)
Other current assets (19,032) --
Increases (Decreases) in Liabilities
Accounts payable and accrued expenses 304,255 63,368
Income taxes payable 80,253 5,020
Payroll and sales taxes payable (16,776) 42,310
Pension and profit sharing contribution payable 42,685 54,648
--------- ---------
Net Cash Provided by Operating Activities 207,146 98,646
--------- ---------
Cash Flows From Investing Activities
Purchases of equipment (41,917) (68,040)
Purchases of marketable investment securities (19,434) (37,500)
--------- ---------
Net Cash (Used) by Investing Activities (61,351) (105,540)
--------- ---------
Cash Flows From Financing Activities
Proceeds from sale of common stock 14 54,000
Purchase of treasury stock (72,484) --
Proceeds from borrowings -- 60,000
Repayment of borrowings (11,987) (9,086)
--------- ---------
Net Cash (Used) Provided by Financing Activities (84,457) 104,914
--------- ---------
Net Increase in Cash 61,338 98,020
Cash at Beginning of Period 98,020 --
--------- ---------
Cash at End of Period $ 159,358 $ 98,020
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,316 $ 4,693
Income taxes $ 7,836 $ --
</TABLE>
See notes to the financial statements.
6
<PAGE> 10
ADVANCED DIGITAL SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Advanced Digital Services, Inc. (the Company) is a digital pre-press
and printing company located in New York City. The majority of the
company's revenues are derived from businesses located within New York
City.
Marketable Investment Securities
The Company invests in equity securities. These securities are
classified at the date of purchase as available-for-sale securities.
Available-for-sale securities are reported at fair market value with
unrealized gains and losses, net of the related tax effect, reflected
as a separate component of stockholders' equity until such gains or
losses are realized.
Realized gains and losses on investment securities are determined using
the specific identification method. Dividend and interest income are
recognized when earned.
Depreciation
The cost of property, plant and equipment is depreciated for financial
reporting purposes on a straight-line basis over the estimated useful
lives of the assets: 5 years for computer equipment and 7 years for
furniture and fixtures. Repairs and maintenance expenditures which do
not extend the useful lives of the related assets are expensed as
incurred.
For federal income tax purposes, depreciation is computed under
accelerated methods over the asset's class life.
Income Taxes
The Company uses the accrual method of accounting for financial
statements presentation purposes and files its corporate income tax
returns using the cash method.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
7
<PAGE> 11
ADVANCED DIGITAL SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT AND BUSINESS RISK
The Company provides credit in the normal course of business to customers.
Ongoing credit evaluations of its customers are performed, and allowances
for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends, and other information are
maintained.
MARKETABLE INVESTMENT SECURITIES
Cost and fair market value of the Company's investments in equity
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Fair
Unrealized Unrealized Market
June 30, 1997 Cost Gains Losses Value
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities $56,940 $860 $ - $57,800
June 30, 1996
Available-for-sale:
Equity securities $37,506 $ - $820 $36,686
</TABLE>
EQUIPMENT
Equipment at cost, less accumulated depreciation, consists of the
following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Computer equipment $105,854 $ 67,387
Furniture and fixtures 4,103 653
-------- --------
Subtotal 109,957 68,040
Less accumulated depreciation 35,327 13,540
-------- --------
Total $ 74,630 $ 54,500
======== ========
</TABLE>
Depreciation expense charged to operations was $21,787 and $13,540 in 1997
and 1996, respectively.
8
<PAGE> 12
ADVANCED DIGITAL SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
------- -------
<S> <C> <C>
Installment Notes
Interest at 9% due in monthly installments of $1,245 including interest
through June 2000 secured by a personal guarantee from a corporate officer $38,927 $50,914
Less current maturities 11,904 10,802
------- -------
Long-Term Debt, Net of Current Maturities $27,023 $40,112
======= =======
Total maturities of long-term debt are as follows:
Year Ending June 30,
1998 $11,904
1999 13,021
2000 14,002
-------
$38,927
=======
</TABLE>
OPERATING LEASE COMMITMENTS
The Company leases certain office space and equipment under operating
leases. Lease expense charged to operations was $143,403 and $93,586 in
1997 and 1996 respectively.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of June 30, 1997.
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
1998 $119,758
1999 70,870
2000 47,245
--------
Total minimum payments required $237,873
========
</TABLE>
The lease for office space also contain provisions for contingent rental
payments based upon increases in the Consumer Price Index.
9
<PAGE> 13
ADVANCED DIGITAL SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
INCOME TAXES
The income tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Federal State City Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current $ 43,230 $ 19,584 $ 22,459 $ 85,273
Deferred (37,730) (13,458) (3,981) (63,860)
--------- --------- --------- ---------
$ 5,500 $ 6,126 $ 18,478 $ 30,104
========= ========= ========= =========
Year Ended June 30, 1996
Current $ -- $ -- $ 5,020 $ 5,020
Deferred 163,057 59,098 47,282 269,437
--------- --------- --------- ---------
$ 163,057 $ 59,098 $ 52,302 $ 274,457
========= ========= ========= =========
</TABLE>
Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes.
The Company's provision for income taxes differs from applying the
statutory U.S. federal income tax rate to income before income taxes. The
primary differences result from providing for state and city income taxes
and from deducting certain expenses for financial statement purposes but
not for federal income tax purposes.
MONEY PURCHASE PENSION AND PROFIT SHARING PLANS
The Company has a qualified money purchase pension and a profit sharing
plan covering substantially all full time employees. Contributions to the
money purchase pension plan are at a predetermined rate whereas
contributions to the profit sharing plan are discretionary and determined
annually by management. Contributions to the plans equaled the amount
charged to expense, which was $97,333 and $54,648 in 1997 and 1996,
respectively.
RELATED PARTY TRANSACTIONS
The Company leases certain furniture and computer equipment from a
corporation owned by one of its shareholders. Lease expense to the entity
was $28,620 in both 1997 and 1996.
The Company's long-term debt of $38,927 (1997) and $50,914 (1996) is with a
corporation owned by one of its shareholders.
The Company assumed all lease agreements of two corporations that are owned
by one of its shareholders.
SUBSEQUENT EVENTS
On July 31, 1997 all of the Company's stock was purchased by Katz Digital
Technologies, Inc. In addition, as part of the sale, the balance due on the
long-term debt was paid in full by the Company.
10
<PAGE> 14
ADVANCED DIGITAL SERVICES, INC.
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<PAGE> 15
ADVANCED DIGITAL SERVICES, INC.
INDEX TO THE FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements
Statements of Operations.......................................... 1
Statements of Cash Flows ......................................... 2
Notes to the Financial Statements ................................ 3
</TABLE>
<PAGE> 16
ADVANCED DIGITAL SERVICES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1997 1996
--------- ----------
Amount Amount
--------- ----------
<S> <C> <C>
Net Sales $1,274,410 $1,010,804
Total Cost of Sales 531,672 451,607
---------- ----------
Gross Profit 742,738 559,197
Total Selling, General & Administrative Expenses 507,677 172,810
---------- ----------
Income From Operations Before Officers' Salaries 235,061 386,145
---------- ----------
Officers' salaries and related payroll taxes 582,937 207,902
---------- ----------
(Loss) Income From Operations (347,876) 178,485
Other Income (Expenses)
Interest income 13,099 6,885
Rental income 250 1,250
Management fee (175,000) (1,015)
Interest expense - (1,260)
Miscellaneous (2,296) (2,816)
Professional Fees - acquisition related (45,164) -
---------- ----------
Total Other (Expense) Income (209,111) 3,044
---------- ----------
(Loss) Income Before Income Taxes (556,987) 181,529
Income Tax (Benefit) Provision (223,300) 61,720
---------- ----------
Net (Loss) Income $ (333,687) $ 119,809
========== ==========
</TABLE>
1
<PAGE> 17
ADVANCED DIGITAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net (Loss) Income $ (333,687) $ 119,809
Adjustments to Reconcile Net (Loss) Income to Net Cash
(Used) by Operating Activities
Depreciation 7,115 9,210
Deferred income taxes (49,100) 58,264
Provision for losses on accounts receivable 200,000 -
Bad debt expense 7,926 -
Decreases (Increases) in Assets
Accounts receivable (483,127) (313,911)
Other current assets (19,032) -
Accounts receivable from affiliates 175,000 -
Increases (Decreases) in Liabilities
Accounts payable and accrued expenses 319,380 24,170
Income taxes payable (166,663) 5,020
Payroll and sales taxes payable 14,932 20,530
Pension and profit sharing contribution payable 92,685 54,648
----------- ----------
Net Cash (Used) by Operating Activities (234,571) (22,260)
----------- ----------
Cash Flows From Investing Activities
Purchases of equipment (3,730) (38,571)
Purchases of marketable investment securities (12,499) (37,506)
----------- ----------
Net Cash (Used) by Investing Activities (16,229) (76,077)
----------- ----------
Cash Flows From Financing Activities
Proceeds from sale of common stock 14 24,000
Purchase of treasury stock (72,484) -
Repayment of borrowings (6,707) (5,356)
----------- ----------
Net Cash (Used) Provided by Financing Activities (79,177) 18,644
----------- ----------
Net Decrease in Cash (329,977) (79,693)
Cash at Beginning of Period 489,335 177,713
----------- ----------
Cash at End of Period $ 159,358 $ 98,020
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ - $ 1,260
</TABLE>
2
<PAGE> 18
ADVANCED DIGITAL SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
UNAUDITED FINANCIAL STATEMENTS
The financial statements for the six months ended June 30, 1997 and 1996 are
unaudited. In the opinion of the Company, the unaudited financial statements for
the six months ended June 30, 1997 and 1996, include all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the
results of operations for such periods. Results of operations for the six months
ended June 30, 1997 are not necessarily indicative of results to be expected for
the full year.
3
<PAGE> 19
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, 1997 balance sheets of Katz Digital Technologies, Inc. (the
"Company") and Advanced Digital Services, Inc. ("ADSI") and giving effect to the
acquisition of ADSI by the Company as if it occurred as of June 30, 1997. 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,
1997.
The following pro forma unaudited condensed statement of earnings for the year
ended December 31, 1996 reflects 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 the unaudited condensed statements
of earnings for the year ended December 31, 1996 and for the six months ended
June 30, 1997 give effect to the Company's acquisition of ADSI 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 ADSI and related notes thereto, included herewith.
-1-
<PAGE> 20
Katz Digital Technologies, Inc.
UNAUDITED CONDENSED BALANCE SHEET
As of June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Advanced
Digital Pro forma
Services, adjustments
Katz Inc. increase Pro
ASSETS historical historical (decrease) forma
------------ ----------- --------- ------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,684,142 $ 159,358 $(500,000) (a) $ 2,343,500
Accounts receivable, net 3,939,469 835,825 4,775,294
Work-in-process inventory 90,449 90,449
Prepaid expenses and other current
assets 139,304 19,032 158,336
------------ ----------- --------- ------------
Total current assets 6,853,364 1,014,215 (500,000) 7,367,579
PROPERTY AND EQUIPMENT -
NET 4,042,231 74,630 4,116,861
GOODWILL - NET 1,808,346 367,992 (b) 2,176,338
OTHER ASSETS 72,585 57,800 14,327 (b) 144,712
------------- ----------- --------- ------------
$ 12,776,526 $ 1,146,645 $(117,681) $ 13,805,490
============= =========== ========= ============
</TABLE>
-2-
<PAGE> 21
Katz Digital Technologies, Inc.
UNAUDITED CONDENSED BALANCE SHEET
As of June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Advanced
Digital Pro forma
Services, adjustments
LIABILITIES AND Katz Inc. increase Pro
STOCKHOLDERS' EQUITY historical historical (decrease) forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 1,302,345 $ 490,496 $ 200,000(a) $ 1,992,841
Current portion of notes payable 166,665 11,904 178,569
Current portion of obligations
under capital lease 747,028 747,028
Income taxes payable 18,450 85,273 103,723
Deferred taxes payable 114,000 214,268 328,268
------------ ------------ ------------ ------------
Total current liabilities 2,348,488 801,941 200,000 3,350,429
DEFERRED TAXES PAYABLE 151,000 151,000
OTHER DEFERRED LIABILITIES 543,203 543,203
NOTES PAYABLE 333,335 27,023 360,358
OBLIGATIONS UNDER CAPITAL
LEASES, NET OF CURRENT
PORTION 1,669,291 1,669,291
------------ ------------ ------------ ------------
5,045,317 828,964 200,000 6,074,281
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 4,504 69 (69)(c) 4,504
Additional paid-in capital 7,096,423 53,945 (53,945)(c) 7,096,423
Retained earnings - net 630,282 335,291 (335,291)(c) 630,282
Treasury stock (72,484) 72,484 (c)
Unrealized gain on marketable
securities 860 (860)(c)
------------ ------------ ------------ ------------
7,731,209 317,681 (317,681) 7,731,209
------------ ------------ ------------ ------------
$ 12,776,526 $ 1,146,645 $ (117,681) $ 13,805,490
============ ============ ============ ============
</TABLE>
-3-
<PAGE> 22
Katz Digital Technologies, Inc.
UNAUDITED CONDENSED STATEMENT OF EARNINGS
For the six months ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Advanced
Digital Pro forma
Services, adjustments
Katz Inc. increase Pro
historical historical (decrease) forma
------------ ------------ --------- ------------
<S> <C> <C> <C>
Net sales $ 9,150,729 $ 1,274,410 $ 10,425,139
Cost of goods sold 4,060,543 531,672 4,592,215
------------ ------------ ------------
Gross profit 5,090,186 742,738 5,832,924
Operating expenses
Selling, general and administrative 4,215,067 1,090,614 $ (284,202)(a)
9,200(b) 5,030,679
------------ ------------ --------- ------------
Operating income (loss) 875,119 (347,876) 275,002 802,245
------------ ------------ --------- ------------
Interest (expense) income, net (49,386) 13,099 7,500(c) (43,787)
Management fee expense (175,000) (175,000)
Other (expenses), net (47,210) (47,210)
------------ ------------ --------- ------------
Earnings (loss) before provision
for income taxes 825,733 (556,987) 267,502 536,238
Provision for income taxes (benefit) 406,719 (223,300) 136,414 319,833
------------ ------------ --------- ------------
NET (LOSS) EARNINGS $ 419,014 $ (333,687) $ 131,088 $ 216,415
============ ============ ========= ============
Net earnings per share $ .09 $ .05
============ ============
Weighted average shares outstanding 4,503,745 4,805,563
============ ============
</TABLE>
-4-
<PAGE> 23
Katz Digital Technologies, Inc.
UNAUDITED CONDENSED STATEMENT OF EARNINGS
For the year ended December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Advanced
Digital Pro forma
Services, adjustments Pro
Katz Inc. increase forma
historical historical (decrease) results
------------- ----------- --------- -------------
<S> <C> <C> <C>
Net sales $15,565,919 $2,188,246 $17,754,165
Cost of goods sold 7,997,418 924,803 8,922,221
------------- ----------- -------------
Gross profit 7,568,501 1,263,443 8,831,944
Operating expenses
Selling, general and administrative 6,425,896 631,312 $ 282,250 (a)
18,400 (b) 7,357,858
------------- ----------- --------- -------------
Operating income 1,142,605 632,131 (300,650) 1,474,086
------------- ----------- --------- -------------
Interest (expense) income, net (67,421) 13,638 (15,000) (c) (68,783)
Curtailment loss (332,179) (332,179)
Management fee income 173,985 173,985
Other (expenses), net (27,766) (27,766)
------------- ----------- --------- -------------
Earnings before provision for
income taxes 743,005 791,988 (315,650) 1,219,343
Provision (benefit) for income taxes 940,181 315,124 (167,926) (d) 1,087,379
------------- ----------- --------- -------------
NET (LOSS) EARNINGS $ (197,176) $ 476,864 $(147,724) $ 131,964
============= =========== ========= =============
Pro forma data
Historical income before provision
for income taxes $ 743,005 $ 791,988 $(315,650) $ 1,219,343
Provision for income taxes 396,442 315,124 (167,926) 543,640
------------- ----------- --------- -------------
Net earnings $ 346,563 $ 476,864 $(147,724) $ 675,703
============= =========== ========= =============
Net earnings per share $.08 $.15
=== ===
Weighted average shares outstanding 4,116,395 4,418,213
============ ============
</TABLE>
-5-
<PAGE> 24
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
July 31, 1997 of Advanced Digital Services, Inc. ("ADSI") through a merger into
Katz Digital Acquisition, Inc., a wholly-owned subsidiary of the Company.
As aggregate consideration for the Merger, the ADSI shareholders received
$1,585,673, comprised of cash in the amount of $500,000, 301,818 shares of the
Company's common stock (valued at $835,673) (the "Merger Shares"), and
promissory notes in the aggregate principal amount of $250,000, with interest
payable thereon at an annual rate of 7% and becoming due and payable July 1,
2002 (the "Notes"). The Merger consideration is subject to adjustment based on
the collectibility of certain accounts receivable of ADSI and variations from
certain amounts of ADSI's net worth on July 31, 1997, or the revenues generated
by the Survivor Corporation during the first twelve-month period following the
Merger being less than the minimum provided for in the merger agreement. The
Notes and the certificates representing the Merger Shares will be held in escrow
pending the final determination of the Merger consideration. The number of the
Merger Shares (which are subject to adjustment as described above) was
determined by dividing $835,673 by the average closing price of the Company's
common stock for twenty (20) consecutive trading days on the NASDAQ National
Market ending three (3) business days prior to the date of the consummation of
the Merger. The portion of the purchase price which is subject to adjustment
based on the minimum revenues generated by the Survivor Corporation during the
first twelve-month period following the Merger ($1,100,000) has been accounted
for as contingent purchase price for financial accounting purposes.
Concurrently with the Merger, each of the ADSI shareholders, who were also the
former principal officers of ADSI, entered into employment agreements with the
Survivor Corporation to become Vice Presidents for five-year terms, as well as
agreements imposing certain noncompetition and confidentiality restrictions.
The pro forma financial statements reflect the $485,673 portion of the purchase
price which is not contingent on the attainment of a minimum level of sales and
the $1,100,000 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 December 31, 1996
historical financial statements because of the Company's status as an S
Corporation.
-6-
<PAGE> 25
Katz Digital Technologies, Inc.
NOTES TO PRO FORMA UNAUDITED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Had the contingent amounts been recorded, notes payable and stockholders' equity
would have increased by $250,000 and $835,673, respectively, other assets
reduced by $14,327 and goodwill increased by $1,100,000. In addition, pro forma
earnings before income taxes and pro forma net earnings after pro forma income
taxes would have decreased by $72,500 and $63,750, respectively, for the year
ended December 31, 1996 and $36,250 and $31,875, respectively, for the six
months ended June 30, 1997, respectively. In addition, pro forma earnings per
share would have decreased by $.01 and $.01 for the year ended December 31, 1996
and the six months ended June 30, 1997, 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.
Balance sheet at June 30, 1997:
(a) To record the acquisition of Advanced Digital Services, Inc. for a
fixed purchase price of $485,673, plus acquisition-related expenses,
determined as follows:
<TABLE>
<S> <C>
Purchase price, less contingent consideration $485,673
Acquisition and related fees (accounts payable) 200,000
--------
$685,673
========
Cash deposit in excess of minimum purchase price $ 14,327
========
Cash paid on closing $500,000
Accrued expenses 200,000
--------
$700,000
========
</TABLE>
(b) To allocate purchase price to assets acquired and excess purchase price
to goodwill.
(c) To eliminate equity, additional paid-in capital and retained earnings
of ADSI.
-7-
<PAGE> 26
Katz Digital Technologies, Inc.
NOTES TO PRO FORMA UNAUDITED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Statements of earnings for the year ended December 31, 1996 and for the six
months ended June 30, 1997.
(a) To record new employment arrangements and amortization of restrictive
covenants over a ten-year life.
(b) To amortize goodwill based upon a twenty-year life.
(c) To eliminate interest income received on $500,000 at an annual rate of
3 %.
(d) To record the tax effect of tax deductible pro forma adjustments, which
excludes goodwill amortization.
-8-
<PAGE> 27
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
2.1* Plan and Agreement of Merger by and among the Registrant, Advanced
Digital Services, Inc., the former shareholders of Advanced Digital
Services, Inc. and Katz Digital Acquisition, Inc., a wholly owned
subsidiary of the Registrant, with schedules thereto.
2.2* Employment Agreement dated July 31, 1997 by and between Advanced
Digital Services, Inc. and David Katz.
-9-
<PAGE> 28
2.3* Employment Agreement dated July 31, 1997 by and between Advanced
Digital Services, Inc. and Gary Ritkes.
2.4* Non-Competition Agreement dated July 31, 1997 by and between the
Registrant and David Katz.
2.5* Non-Competition Agreement dated July 31, 1997 by and between the
Registrant and Gary Ritkes.
- ------------------
* Filed as an exhibit to the Registrant's Current Report on Form 8-K,
filed with the Commission on July 31, 1997, and incorporated herein by
reference.
10
<PAGE> 29
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 14, 1997
KATZ DIGITAL TECHNOLOGIES, INC.
By:/s/ Donald L. Flamm
----------------------
Donald L. Flamm
Vice President and Chief Financial Officer
11
<PAGE> 30
EXHIBIT
NUMBER DESCRIPTION
2.1* Plan and Agreement of Merger by and among the Registrant, Advanced
Digital Services, Inc., the former shareholders of Advanced Digital
Services, Inc. and Katz Digital Acquisition, Inc., a wholly owned
subsidiary of the Registrant, with schedules thereto.
2.2* Employment Agreement dated July 31, 1997 by and between Advanced
Digital Services, Inc. and David Katz.
2.3* Employment Agreement dated July 31, 1997 by and between Advanced
Digital Services, Inc. and Gary Ritkes.
2.4* Non-Competition Agreement dated July 31, 1997 by and between the
Registrant and David Katz.
2.5* Non-Competition Agreement dated July 31, 1997 by and between the
Registrant and Gary Ritkes.
- ------------------
* Filed as an exhibit to the Registrant's Current Report on Form 8-K,
filed with the Commission on July 31, 1997, and incorporated herein by
reference.
12
