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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB/A
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER 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 - 027934
KATZ DIGITAL TECHNOLOGIES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3871120
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21 PENN PLAZA
NEW YORK, NEW YORK 10001 10001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 594-4800
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
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The number of shares outstanding of the Issuer's common stock is 4,503,745 (as
of November 3, 1997).
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KATZ DIGITAL TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB/A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED SEPTEMBER 30, 1997
ITEMS IN FORM 10-QSB/A
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Facing page
Part I
Item 1. Financial Statements. 1
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. None
Part II
Item 1. Legal Proceedings and Claims. None
Item 2. Changes in Securities and Use of Proceeds. None
Item 3. Default Upon Senior Securities. None
Item 4. Submission of Matters to
a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. None
Signatures
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
The Company is filing this Amendment #1 to its Form 10-QSB, originally
filed with the Securities and Exchange Commission on November 12, 1997, to
correct the Company's Financial Statements by inserting a new line item in its
Statement of Cash Flows, "Gain on early termination of capital lease", in the
amount of ($8,790.00) and by changing the amount of the item "Depreciation and
amortization" for 1997 in its Statement of Cash Flows from $991,979.00 to
$995,122.00. There were no other changes to the remainder of such Financial
Statements or to the balance of the information contained in the originally
filed Form 10-QSB.
1
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KATZ DIGITAL TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997
(Unaudited) December 31, 1996
ASSETS ----------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,848,389 $ 3,428,175
Accounts receivable, net of allowance for doubtful accounts of $326,738
and $94,738 at September 30, 1997 and December 31, 1996, respectively 5,358,367 3,216,386
Work-in-process inventory 81,612 69,328
Prepaid expenses and other current assets 161,733 163,514
---------------------------------------
Total Current Assets 7,450,101 6,877,403
PROPERTY AND EQUIPMENT - NET 4,000,766 3,568,853
OTHER ASSETS 68,239 80,333
GOODWILL - NET 2,395,933 1,140,819
=======================================
$ 13,915,039 $ 11,667,408
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,822,798 $ 1,160,254
Current portion of notes payable 166,665 --
Current portion of obligations under capital leases 726,683 699,029
Income taxes payable 92,372 66,151
Deferred taxes payable 164,690 114,000
Due to stockholders -- 339,912
---------------------------------------
Total Current Liabilities 2,973,208 2,379,346
DEFERRED CREDITS 381,360 265,520
DEFERRED TAXES PAYABLE 303,068 265,000
PENSION LIABILITY 154,450 191,258
NOTES PAYABLE 333,335 --
OBLIGATIONS UNDER CAPITAL LEASES, NET OF
CURRENT PORTION 1,494,958 1,490,323
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Total Liabilities 5,640,379 4,591,447
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 5,000 shares authorized;
no shares issued -- --
Common stock, $.001 par value; 25,000,000 shares authorized;
4,577,909 and 4,425,000 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 4,578 4,425
Additional paid-in capital 7,323,055 6,860,267
Retained earnings 947,027 211,269
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Total Stockholders' Equity 8,274,660 7,075,961
---------------------------------------
$ 13,915,039 $ 11,667,408
=======================================
</TABLE>
The accompanying notes are an integral part of these statements.
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KATZ DIGITAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $5,560,534 $3,906,584 $14,711,263 $ 11,204,938
Cost of goods sold 2,486,337 1,825,960 6,546,880 4,800,623
----------------------- --------------------------
Gross profit 3,074,197 2,080,624 8,164,383 6,404,315
Selling, general and administrative expenses 2,420,204 1,912,233 6,635,271 5,331,062
----------------------- --------------------------
Operating income 653,993 168,391 1,529,112 1,073,253
Interest expense (income) -net 27,021 18,109 76,407 49,220
----------------------- --------------------------
Earnings before provision for income taxes 626,972 150,282 1,452,705 1,024,033
Provision for income taxes 310,226 70,414 716,945 1,091,318
----------------------- --------------------------
Net earnings (loss) $ 316,746 $ 79,868 $ 735,760 $ (67,285)
======================= ==========================
Pro forma data
Historical earnings before provision for income taxes $ 626,972 $ 150,282 $ 1,452,705 $ 1,024,033
Provision for income taxes 310,226 70,414 716,945 481,881
----------------------- --------------------------
Net earnings $ 316,746 $ 79,868 $ 735,760 $ 542,152
======================= ==========================
Net earnings per share $ 0.07 $ 0.02 $ 0.16 $ 0.14
======================= ==========================
Weighted average number of shares outstanding 4,704,957 4,477,211 4,570,816 3,986,336
======================= ==========================
</TABLE>
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KATZ DIGITAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 735,760 $ (67,285)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 995,122 712,183
Deferred credits 115,840 240,694
Gain on early termination of capital lease (8,790)
Deferred taxes (114,000) 521,000
Increase (decrease) in cash flows from changes in operating assets
and liabilities (net of acquisition):
Accounts receivable (1,582,451) (1,265,713)
Work-in-process inventory (12,284) (72,833)
Prepaid expenses and other current assets 23,872 (26,552)
Other assets 12,094 2,672
Accounts payable and accrued expenses 396,760 704,520
Income taxes payable (68,975) (59,165)
Net pension liability (36,808) (186,869)
----------- -----------
Net cash provided by operating activities 456,140 502,652
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment - net (666,756) (889,956)
Purchase of certificate of deposit - (2,089)
Purchase of Advanced Digital Services, Inc. (470,023) -
Purchase of The Sarabande Press, Inc. - (1,090,678)
--------------------------
Net cash used in investing activities (1,136,779) (1,982,723)
--------------------------
Cash flows from financing activities:
Distributions to stockholders (339,912) (956,054)
Payments of obligations under capital leases (559,235) (502,390)
Net proceeds from public offering - 6,361,892
----------- -----------
Net cash provided by (used in) financing activities (899,147) 4,903,448
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,579,786) 3,423,377
Cash and cash equivalents - beginning of period 3,428,175 200,729
=========== ===========
Cash and cash equivalents - end of period $ 1,848,389 $ 3,624,106
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 171,596 $ 141,056
Income taxes $ 797,700 $ 628,734
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
Capital lease obligations of $803,524 and $1,674,895 were incurred in the
nine month periods ended September 30, 1997 and 1996, respectively, as a
result of the Company entering into new equipment leases.
The accompanying notes are an integral part of these statements.
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KATZ DIGITAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The summarized financial information included herein does not include all
disclosures required in a complete set of financial statements prepared in
conformity with generally accepted accounting principles. Such disclosures were
included with the financial statements of the Company at December 31, 1996 and
for the year then ended in the Company's Form 10K as filed with the Securities
and Exchange Commission. These statements should be read in conjunction with
the data therein.
The financial information included herein contains all adjustments (consisting
of normal recurring accruals) which, in the opinion of management, are deemed
necessary for a fair presentation of the results for the interim period. The
results for the interim periods are not necessarily indicative of results that
may be expected for the full fiscal year. Certain reclassifications have been
made to the prior year statements to conform to the current
year presentation.
NOTE B - TERMINATION OF S CORPORATION STATUS AND PRO FORMA INFORMATION
Prior to the consummation of the Company's initial public offering, The Company
filed its Federal and state income tax returns under the provisions of
Subchapter S of the Internal Revenue Code. Accordingly, no provision had been
made in the accompanying financial statements for Federal and certain state
income taxes for the S Corporation periods, since income of the Company was
taxable directly to its stockholders. The Company was however, liable for
certain state and local taxes, which are reflected in the accompanying
financial statements. Upon closing of the public offering, the Company's income
tax status as an S Corporation terminated. The Company converted to a C
Corporation, adopted the accrual basis of accounting and is subject to both
Federal and state corporate income taxes. Accordingly, $723,000 additional
Federal and state income taxes, applicable to temporary differences in the
recognition of income and expenses for financial accounting and income tax
reporting purposes existing at March 26, 1996 (the date of the initial public
offering), have been recorded and charged to operations for the nine months
ended September 30, 1996. Pro forma income taxes in 1996 reflect an additional
provision for income taxes at the effective Federal, state and local rates
applied to the Company's financial statement income.
Pro forma earnings per share are based on the weighted average number of common
and common equivalent shares outstanding during the period. The shares
outstanding for the period ending September 30, 1996, give retroactive effect
to the merger and recapitalization of the Company as well as 154,443 shares
deemed to be outstanding, which represent the approximate number of shares
deemed to be sold by the Company (at an assumed public offering price of $5.00
per share) to fund the portion of the shareholder distribution in excess of
1995 undrawn earnings.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The new Standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and, if applicable,
diluted earnings per share. Basic earnings per share is computed by dividing
income available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflects the weighted
average common shares outstanding and dilutive potential common shares such as
stock options. The pro forma effect of adopting the new standard would not
materially effect reported earnings per share for the periods presented.
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<PAGE> 8
The Financial Accounting Standards Board also released Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
governing the reporting and display of comprehensive income and its components,
and Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS 131), requiring that
all public businesses report financial and descriptive information about their
reportable operating segments. Both Statements are applicable to reporting
periods beginning after December 15, 1997. The impact of adopting SFAS No. not
expected to be material to the consolidated financial statements. Management is
currently evaluating the effect of SFAS No. 131 on consolidated financial
statement disclosures.
NOTE D - ACQUISITIONS
As reported on a Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 13, 1997, on July 31, 1997 the Company completed
its acquisition by merger of Advanced Digital Services, Inc. ("ADS"). The
purchase price of $1,585,673 was composed of $500,000 in cash, $250,000 in 7%
five year notes and 301,818 restricted shares of the Company's common stock.
The final purchase price is subject to adjustment based on Net Worth (as
defined in the Plan and Agreement of Merger, filed as an exhibit to the Form
8-K) pursuant to an audit of ADS's financial statements, the collectability of
certain accounts receivable and revenues generated by the ADS operations during
the twelve month period following the merger. In addition, concurrent with the
merger, the former shareholders of ADS each entered into five year employment
agreements, as well as agreements imposing certain non-competition and
confidentiality restrictions.
The acquisition of ADS has been treated as a "purchase" for the purposes of
generally accepted accounting principles, with the purchase price allocated
based on the fair value of the assets acquired and liabilities assumed.
Approximately $648,000 was allocated to goodwill.
In conjunction with the 1996 acquisition of The Sarabande Press, Inc. notes
payable, common stock, additional paid in capital and accrued interest totaling
$767,276 with a corresponding amount of goodwill, was recorded in the nine
month period ended September 30, 1997.
NOTE E - PRO FORMA RESULTS
The unaudited pro-forma results of operations, which reflects the purchase of
ADS as if the combination occurred as of the beginning of the period, are as
follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Net Sales $16,211,602 $12,865,494
Net Earnings 512,187 95,556
Pro-Forma Net Earnings 512,187 657,667
Pro-Forma Net Earnings Per Share $ .11 $ .14
Weighted average number of shares outstanding 4,805,563 4,805,563
</TABLE>
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
Registrant:
KATZ DIGITAL TECHNOLOGIES, INC.
Date: November 21, 1997 By: /s/ Gary Katz
---------------------------------------
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: November 21, 1997 By: /s/ Donald L. Flamm
---------------------------------------
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
2
