<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended June 30, 1998
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 0-27934
KATZ DIGITAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-3871120
- ------------------------- ------------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No)
incorporation or
organization)
Twenty One Penn Plaza, New York, New York 10001
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 594-4800
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 5,039,572 as of August 12, 1998
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock, $.001 par value 5,039,572
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE> 2
KATZ DIGITAL TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
SIX MONTHS ENDED JUNE 30, 1998
ITEMS IN FORM 10-QSB
Facing Page
Page
Part I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II
Item 1. Legal Proceedings None
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
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<PAGE> 3
PART I
Item 1. Financial Statements
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<PAGE> 4
KATZ DIGITAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998
(Unaudited) December 31, 1997
----------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 324,250 $ 1,651,930
Accounts receivable, net of allowance for doubtful
accounts of $361,238 and $94,738 at June 30, 1998 and
December 31, 1997, respectively 8,836,088 4,723,183
Work-in-process inventory 455,731 100,483
Prepaid expenses and other current assets 436,352 106,651
Prepaid income taxes 185,554
------------------------------
Total Current Assets 10,052,421 6,767,801
PROPERTY AND EQUIPMENT - NET 6,601,364 3,893,006
OTHER ASSETS 409,341 288,508
GOODWILL - NET 11,628,780 2,627,485
------------------------------
$28,691,906 $13,576,800
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,751,369 $ 1,732,277
Current portion of notes payable 176,415
Current portion of term loan 2,000,000
Current portion of obligations under capital leases 1,511,368 739,603
Income taxes payable 57,654
Deferred taxes payable 59,000 186,000
------------------------------
Total Current Liabilities 6,555,806 2,657,880
DEFERRED CREDITS 441,892 410,774
DEFERRED TAXES PAYABLE 85,000 85,000
NOTES PAYABLE 468,859 300,000
REVOLVING CREDIT AGREEMENT 4,989,000
TERM LOAN 3,125,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF
CURRENT PORTION 2,045,292 1,351,568
------------------------------
Total Liabilities 17,710,849 4,805,222
------------------------------
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; 5,039,572 and 4,705,202 shares issued
and outstanding at June 30, 1998 and December
31, 1997, respectively 5,040 4,705
Additional paid-in capital 8,881,560 7,687,621
Retained earnings 2,094,457 1,079,252
------------------------------
Total Stockholders' Equity 10,981,057 8,771,578
------------------------------
$28,691,906 $13,576,800
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
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KATZ DIGITAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $10,695,915 $ 4,703,565 $22,071,051 $ 9,150,729
Cost of goods sold 5,139,996 2,133,563 10,818,800 4,060,543
------------------------- -------------------------
Gross profit 5,555,919 2,570,002 11,252,251 5,090,186
Selling, general and administrative expenses 4,224,166 2,062,813 8,799,640 4,215,067
------------------------- -------------------------
Operating income 1,331,753 507,189 2,452,611 875,119
Interest expense-net 294,691 31,844 587,142 49,386
Other income 218 (29,063)
------------------------- -------------------------
Earnings before provision for income taxes 1,036,844 475,345 1,894,532 825,733
Provision for income taxes 481,400 227,532 879,325 406,719
------------------------- -------------------------
Net earnings $ 555,444 $ 247,813 $ 1,015,207 $ 419,014
========================= =========================
Basic earnings per share $ 0.11 $ 0.06 $ 0.20 $ 0.09
========================= =========================
Diluted earnings per share $ 0.10 $ 0.05 $ 0.19 $ 0.09
========================= =========================
Weighted average shares outstanding: 5,039,572 4,488,300 4,997,677 4,456,650
Basic 5,451,707 4,711,764 5,354,379 4,632,277
Diluted
</TABLE>
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<PAGE> 6
KATZ DIGITAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,015,207 $ 419,014
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,465,865 639,804
Deferred credits 31,118 86,425
Deferred taxes (127,000) (114,000)
Increase (decrease) in cash flows from changes in
operating assets and liabilities, net of
acquisition in 1998:
Accounts receivable (424,967) (723,083)
Work-in-process inventory 123,184 (21,121)
Prepaid expenses and other current assets (52,262) 24,210
Prepaid income taxes 185,554
Other assets 106,999 7,748
Accounts payable and accrued expenses (912,382) 111,050
Income taxes payable 57,564 (47,701)
----------- -----------
Net cash provided by operating activities 1,468,880 382,346
----------- -----------
Cash flows from investing activities:
Acquisition of Speed Graphics (292,731)
Proceeds from sale of equipment 350,000
Purchase of property and equipment - net (379,770) (421,910)
----------- -----------
Net cash used in investing activities (322,501) (421,910)
----------- -----------
Cash flows from financing activities:
Distributions to stockholders (339,912)
Revolving credit payments, net 25,000
Term loan payment (875,000)
Other note payments (831,022)
Payments of obligations under capital leases (793,037) (364,557)
----------- -----------
Net cash used in financing activities (2,474,059) (704,469)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,327,680) (744,033)
Cash and cash equivalents - beginning of period 1,651,930 3,428,175
----------- -----------
Cash and cash equivalents - end of period $ 324,250 $ 2,684,142
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 553,805 $ 118,215
Income taxes $ 786,349 $ 555,200
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
Capital lease obligations of $71,640 and $803,521 were incurred in the six
month periods ended June 30, 1998 and 1997, respectively, as a result of
the Company entering into new equipment leases.
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 six month period ended June 30, 1997
The accompanying notes are an integral part of these statements.
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<PAGE> 7
KATZ DIGITAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED 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, 1997 and
for the year then ended in the Company's Form 10KSB 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 - PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions have been
eliminated.
NOTE C - 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"). As
aggregate consideration for the merger, the ADS shareholders received $1,406,284
as adjusted, composed of cash in the amount of $500,000, 301,818 shares of the
Company's common stock (valued at $835,673), and promissory notes in the
aggregate principal amount of $70,611, with interest payable thereon at an
annual rate of 7% and becoming due and payable July 1, 2002. The purchase price
is subject to further adjustment based on the collection of certain accounts
receivable. Concurrently with the merger, each of the ADS shareholders, who were
also the former principal officers of ADS, entered into employment agreements to
become Vice Presidents of the Company for five-year terms, as well as agreements
imposing certain noncompetition 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 $1,476,000 was allocated to goodwill.
As reported on Current Reports on Form 8-K filed with the Securities and
Exchange commission on January 23, 1998 and March 24, 1998 respectively, on
January 9, 1998 as amended on March 6, 1998, a wholly owned subsidiary of the
Company acquired substantially all the assets of Speed Graphics, Inc. ("Speed")
and DDP, Inc. an affiliate of Speed. Speed is based in New York City and
provides commercial photo lab, prepress photo imaging and digital short-run
printing services.
As aggregate consideration for the acquisition, Speed received cash in the
amount of $10,964,000 and 173,913 shares of the Company's common stock. The
acquisition has been treated as a "purchase" for accounting purposes and
approximately $8,858,000 was allocated to goodwill.
The Company is still compiling certain information required to complete the
allocation of the purchase price of ADS and Speed. Further adjustments may arise
as a result of the finalization of the ongoing review.
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<PAGE> 8
Concurrently with the acquisition of Speed, the Company entered into a loan
agreement with a commercial bank whereby the bank agreed to loan the Company (i)
$6,000,000 in the form of a secured term loan and (ii) $7,000,000 in the form of
a secured revolving credit facility note.
NOTE D - PRO FORMA RESULTS
The unaudited pro forma results of operations, which reflects the purchases of
ADS and Speed as if they had occurred as of the beginning of the period, are as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 22,071,051 $ 22,771,062
Net Earnings 1,015,207 882,201
Pro Forma Net Earnings 1,015,207 796,193
Pro Forma Basic Earnings Per Share $.20 $.16
Pro Forma Diluted Earnings Per Share .19 .16
</TABLE>
NOTE E - EARNINGS PER COMMON SHARE
In. February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share,"
which is effective for financial statements for interim and annual periods
ending after December 31, 1997 and requires that all prior period earnings per
share data be restated. The Company's financial statements reflect this
adoption. The new standard eliminates primary and fully diluted earnings per
share and requires presentation of basic and, if applicable, diluted earnings
per common share. Basic earnings per common share is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per common share reflect the
weighted average common shares outstanding and dilutive potential common shares,
such as stock options.
NOTE F - EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 31, 1997. The
Statement addresses the reporting and presentation of comprehensive income and
its components. Adoption of SFAS No. 130 relates to disclosure within the
financial statements and did not impact the Company's financial statements.
In June 1997, the FASB also released SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. The Statement changes the way publicly owned
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports on a comprehensive basis beginning with the Company's
quarter ending March 31, 1999. Adoption of SFAS No. 131 is not expected to have
a material effect on the Company's financial statements.
NOTE G - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Included in Prepaid Expenses and Other Current Assets are deferred offering
costs related to a secondary stock offering which was postponed in July 1998.
Such costs will be charged against the proceeds of such offering or expensed if
the offering is aborted.
NOTE H - CONTINGENCIES
The Company is involved in various claims arising in the ordinary course of
business which it believes would not have a material impact on the Company's
financial position or results of operations.
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<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth for the periods indicated the percentage of
net sales represented by certain items reflected in the Company's condensed
consolidated statements of operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 48.1% 45.4% 49.0% 44.4%
Gross profit 51.9% 54.6% 51.0% 55.6%
Selling, general and administrative
expenses 39.5% 43.9% 39.9% 46.1%
Net earnings 5.2% 5.3% 4.6% 4.6%
</TABLE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Net sales for the three months ended June 30, 1998 were $10,695,915, an
increase of $5,992,350 or 127.4%, compared to $4,703,565 for the three months
ended June 30, 1997. The increase in net sales was primarily attributable to the
inclusion of sales from Speed Graphics, Inc. ("Speed"), whose assets were
acquired as of January 1, 1998 (the "Speed Acquisition"), plus continued growth
in continuing operations.
Cost of goods sold for the three months ended June 30, 1998 was
$5,139,996, an increase of $3,006,433, or 140.9%, compared to $2,133,563 for the
three months ended June 30, 1997. The increase in cost of goods sold was
primarily attributable to costs related to the increased sales resulting from
the Speed Acquisition and the Company's continuing operations.
Gross profit for the three months ended June 30, 1998 was $5,555,919, an
increase of $2,985,917, or 116.2%, compared to $2,570,002 for the three months
ended June 30, 1997. Gross profit as a percent of net sales decreased to 51.9%
for the three months ended June 30, 1998 from 54.6% in the prior year. The lower
gross profit percentage in 1998 was primarily attributable to the inclusion in
sales of Speed's non-digital or traditional photo-lab services, which
historically have a lower gross profit percentage than digital products and
services.
Selling, general and administrative expenses for the three months ended
June 30, 1998 were $4,224,166, an increase of $2,161,353, or 104.8%, compared to
$2,062,813 for the three months ended June 30, 1997. The increase was primarily
attributable to selling, general and administrative costs related to the Speed
operations.
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<PAGE> 10
Net interest expense for the three months ended June 30, 1998 was
$294,691, an increase of $262,847 compared to $31,844 for the three months ended
June 30, 1997. The increase was due to interest costs associated with borrowings
used to finance the Speed Acquisition plus the interest costs of Speed's capital
leases.
The Company's effective tax rate for the three months ended June 30, 1998
was 46.4% compared to 47.9% for the three months ended June 30, 1997.
As a result of the foregoing and the adjustment of prior estimates of
approximately $125,000, net earnings increased to $555,444 ($.10 per diluted
share) for the three months ended June 30, 1998 from $247,813 ($.05 per diluted
share) for the prior comparable period, an increase of $307,631, or $.05 per
diluted share.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Net sales for the six months ended June 30, 1998 were $22,071,051, an
increase of $12,920,322 or 141.2%, compared to $9,150,729 for the six months
ended June 30, 1997. The increase in net sales was primarily attributable to the
inclusion of sales from Speed, plus continued growth in continuing operations.
Cost of goods sold for the six months ended June 30, 1998 was $10,818,800,
an increase of $6,758,257, or 166.4%, compared to $4,060,543 for the six months
ended June 30, 1997. The increase in cost of goods sold was primarily
attributable to costs related to the increased sales resulting from the Speed
Acquisition and the Company's continuing operations.
Gross profit for the six months ended June 30, 1998 was $11,252,251, an
increase of $6,162,065, or 121.1%, compared to $5,090,186 for the six months
ended June 30, 1997. Gross profit as a percent of net sales decreased to 51.0%
for the six months ended June 30, 1998 from 55.6% in the prior year. The lower
gross profit percentage in 1998 was primarily attributable to the inclusion in
sales of Speed's non-digital or traditional photo-lab services, which
historically have a lower gross profit than digital products and services.
Selling, general and administrative expenses for the six months ended June
30, 1998 were $8,799,640, an increase of $4,584,573, or 108.8%, compared to
$4,215,067 for the six months ended June 30, 1997. The increase was primarily
attributable to selling, general and administrative costs related to the Speed
operations.
Net interest expense for the six months ended June 30, 1998 was $587,142
an increase of $537,756 compared to $49,386 for the six months ended June 30,
1997. The increase was due to interest costs associated with borrowings used to
finance the Speed Acquisition plus the interest costs of Speed's capital leases.
The Company's effective tax rate for the six months ended June 30, 1998
was 46.4% compared to 49.3% for the six months ended June 30, 1997.
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<PAGE> 11
As a result of the foregoing and the adjustment of prior estimates of
approximately $90,000, net earnings increased to $1,015,207 ($.19 per diluted
share) for the six months ended June 30, 1998 from $419,014 ($.09 per diluted
share) for the prior comparable period, an increase of $596,193, or $.10 per
diluted share.
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $3,471,615, compared
to $4,109,921 at December 31, 1997, a decrease of $638,306.
Net cash provided by operating activities totaled $1,468,880 for the six
months ended June 30, 1998 compared to $382,346 for the prior comparable period.
The increase in cash from operating activities in the first six months of 1998
compared to the first six months of 1997 resulted principally from (i) increase
in net income and (ii) the increase in depreciation and amortization which now
includes amounts from Speed's operations as well as the goodwill amortization
from the Speed Acquisition, partially offset by increases in accounts receivable
and reductions in accounts payable and accrued expenses. Prepaid and other
current assets and accounts payable and accrued expenses each increased by
approximately $175,000 as a result of the deferral of certain costs related to a
postponed secondary stock offering (See Note G).
Cash used in investing activities decreased $99,409 from the prior year to
$322,501. Reduced cash usage resulted from (i) lower levels of spending for new
equipment, and (ii) proceeds from the sale of certain redundant equipment,
partially offset by the cash used for the Speed Acquisition.
Cash used in financing activities increased $1,769,590 to $2,474,059 in
the first six months of 1998 as a result of the inclusion of payments due under
Speed's capital leases, scheduled payments on the Company's Term Loan used to
finance the Speed Acquisition and repayment of debt related to equipment
disposed of during the six month period.
The net effect of cash flows from operating activities, investing
activities and financing activities was a net decrease in cash during the first
six months of 1998 of $1,327,680 to an ending balance of $324,250.
The Company maintains a $7,000,000 revolving credit facility with a
commercial bank of which $4,989,000 was outstanding at June 30, 1998, an
increase of $500,000 from March 31, 1998. The Company believes that current cash
balances, available borrowing capacity on its revolving credit facility and cash
generated from operations will provide sufficient cash to meet its operating
requirements for the next twelve months. See "Cautionary Statement Regarding
Forward Looking Information."
Cautionary Statement Regarding Forward Looking Information
This quarterly report on Form 10-QSB contains certain forward-looking
statements and information relating to the Company that are based on the beliefs
of management, as well as assumptions made by and information currently
available to the Company. When used in this document, the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions, as they relate to
the Company, are intended to identify forward-looking statements. Such
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<PAGE> 12
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including those described in this quarterly report on Form 10-QSB. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
Year 2000
The Company believes that advanced information processing is essential to
maintaining its competitive position. The Company has upgraded its management
information systems to ensure proper processing of transactions including those
relating to the year 2000 and beyond. Additionally, the Company uses an
independent service bureau for the processing for payroll and payroll tax
related operations and has been notified by the service bureau that all of its
systems will be fully compliant with year 2000 requirements. Although the
Company believes that the information systems of its major customers and vendors
(insofar as they relate to the Company's business) comply with year 2000
requirements, there can be no assurance that the year 2000 issue will not effect
the information systems of such customers and vendors they relate to the
Company's business or that any such impact on such customers' and vendors'
information systems would not have a material adverse effect on the Company's
business, financial condition or results of operations.
Effect of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 31, 1997. The Statement addresses the reporting and presentation of
comprehensive income and its components. Adoption of SFAS No. 130 relates to
disclosure within the financial statements and did not impact the Company's
financial statements.
In June 1997, the FASB also released SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which is effective for fiscal
years beginning after December 15, 1997. The Statement changes the way publicly
owned companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports on a comprehensive basis beginning with
the Company's quarter ending March 31, 1999. Adoption of SFAS No. 131 is not
expected to have a material effect on the Company's financial statements.
-12-
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities.
On June 2, 1998, the Company granted options to certain of its
employees to purchase an aggregate of 78,000 shares of the Company's Common
Stock at an exercise price of $7.25 per share. Such options were non-qualified
options granted outside the Company's 1996 Stock Option Plan. Such options were
granted in consideration for services rendered and as an incentive for providing
continued services to the Company in the future.
The grant of all of the securities listed above were transferred
without registration under the Securities Act of 1933, as amended (the "Act"),
as they did not involve any public offering, pursuant to the provisions of
Section 4(2) of the Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
A Proxy Statement was mailed on or about March 27, 1998 to
shareholders of record of the Company as of March 2, 1998 in connection with the
Company's 1998 Annual Meeting of Shareholders, which was held on April 30, 1998
at the New York Marriott Marquis Hotel, 1535 Broadway, New York, New York. At
the Meeting, the shareholders voted on three matters and all of such matters
were approved.
The first matter was the election of the members of the Board of
Directors. The five directors elected and the tabulation of the votes (both in
person and by proxy) was as follows:
<TABLE>
<CAPTION>
Nominees for
Directors For Against Abstentions
--------- --- ------- -----------
<S> <C> <C> <C>
Gary Katz 4,046,151 501 68,600
Michael Sklar 4,046,151 501 68,600
Murray Skala 4,046,151 501 68,600
Ronald Grudberg 4,046,151 501 68,600
Burtt Ehrlich 4,046,151 501 68,600
</TABLE>
There were 14,700 broker held non-voted shares represented at the
Meeting with respect to this matter.
The second matter upon which the shareholders voted was
the proposal to ratify the appointment by the Board of
13
<PAGE> 14
Directors of Grant Thornton LLP as independent certified public accountants for
the Company for 1998. The tabulation of the votes (both in person and by proxy)
was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
--- ------- -----------
<S> <C> <C>
4,110,351 4,600 301
</TABLE>
There were 14,700 broker held non-voted shares represented at the
Meeting with respect to this matter.
The third matter upon which the shareholders voted was the proposal
to adopt the Company's Second Amended and Restated 1996 Stock Option Plan. The
tabulation of the votes (both in person and by proxy) was as follows:
<TABLE>
<CAPTION>
For Against Abstentions
--- ------- -----------
<S> <C> <C>
3,185,060 88,401 5,800
</TABLE>
There were 848,691 broker held non-voted shares represented at the
Meeting with respect to this matter.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation (1)
3.2 By-Laws (1)
4.1* First Amendment and Waiver to Loan Agreement by and among the
Company, Katz N.Y. Acquisition, Inc., Advanced Digital Services,
Inc. and the Bank of New York
10.1* Employment Agreement dated as of June 1, 1998 by and between the
Company and Michael Sklar
10.2* Lease of the Company's offices at 342 Madison Avenue, New York,
New York (P)
10.3* Lease of the Company's offices at 228 East 45th Street, New York,
New York (P)
27.1* Financial Data Schedule
14
<PAGE> 15
------------------
* Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form SB-2 (File No. 333-1190) and the amendments thereto,
incorporated herein by reference.
(P) Filed by paper with the Commission pursuant to a continuing
hardship exemption.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the second quarter of the
fiscal year ending December 31, 1998.
15
<PAGE> 16
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.
KATZ DIGITAL TECHNOLOGIES, INC.
Dated: August 14, 1998 By: /s/ Gary Katz
---------------------------
Gary Katz
Chairman & Chief Executive
Officer
Dated: August 14, 1998 By: /s/ Donald L. Flamm
---------------------------
Donald L. Flamm
Principal Financial Officer
(Chief Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
(a) EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation (1)
3.2 By-Laws (1)
4.1* First Amendment and Waiver to Loan Agreement by and among the
Company, Katz N.Y. Acquisition, Inc., Advanced Digital Services,
Inc. and the Bank of New York
10.1* Employment Agreement dated as of June 1, 1998 by and between the
Company and Michael Sklar
10.2* Lease of the Company's offices at 342 Madison Avenue, New York,
New York (P)
10.3* Lease of the Company's offices at 228 East 45th Street, New York,
New York (P)
27.1* Financial Data Schedule
------------------
* Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form SB-2 (File No. 333-1190) and the amendments thereto,
incorporated herein by reference.
(P) Filed by paper with the Commission pursuant to a continuing
hardship exemption.
17
<PAGE> 1
EXHIBIT 4.1
FIRST AMENDMENT AND WAIVER TO LOAN AGREEMENT
THIS FIRST AMENDMENT AND WAIVER AGREEMENT ("Amendment") made this
11th day of May, 1998, among KATZ DIGITAL TECHNOLOGIES, INC., a Delaware
corporation, having its principal place of business at 21 Penn Plaza, New York,
New York 10001 ("Borrower"), ADVANCED DIGITAL SERVICES, INC., a New York
corporation, having its principal place of business at 21 Penn Plaza, New York,
New York 10001, KATZ N.Y. ACQUISITION, INC., a Delaware corporation, having its
principal place of business at 21 Penn Plaza, New York, New York 10001 ("KNYA"
or "Guarantor") and THE BANK OF NEW YORK, a New York banking corporation, having
an office at 530 Fifth Avenue, New York, New York 10036 (the "Bank").
W I T N E S S E T H :
WHEREAS, the Borrower, the Guarantors and the Bank entered into a
Loan Agreement dated as of the 8th day of January, 1998 (hereinafter the
"Agreement"); and
WHEREAS, the Bank has made loans to the Borrower as evidenced by
certain promissory notes of the Borrower and specifying interest to be paid
thereon; and
WHEREAS, the Borrower has requested that the Bank agree to certain
waivers of covenants in the Agreement and to certain amendments to the
Agreement.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Guarantors and the Bank do hereby agree as
follows:
1. Defined Terms. As used in this Amendment, capitalized terms,
unless otherwise defined, shall have the meanings set forth in the Agreement.
2. Representations and Warranties. As an inducement for the bank to
enter into this Amendment, the Borrower and each Guarantor represents and
warrants as follows:
(a) That with respect to the Agreement and the Loan Documents
executed in connection therewith and herewith:
(i) There are no defenses or offsets to the Borrower's or any
Guarantor's obligations under the Agreement, under the Agreement
as amended hereby, the Notes or any of the other Loan Documents
or any other agreements in favor of the Bank referred to in the
Agreement, and if any such defenses or offsets exist without the
knowledge of the Borrower or any Guarantor, the same are hereby
waived;
(ii) All of the representations and warranties made by the
Borrower and any Guarantor in the Agreement or in the Agreement
as amended hereby are true and correct in all material respects
as if made on
<PAGE> 2
the date hereof, except for those made with respect to a
particular date, which such representations and warranties are
restated as of such date; and
(iii) The outstanding aggregate principal balance of (x) the
Term Loan as evidenced by the Term Loan Note is $5,625,000.00 and
interest has been paid through April 13, 1998 and (y) the
Revolving Credit Loans as evidenced by the Revolving Credit Note
is $4,489,000.00 and interest has been paid through April 13,
1998 on those Revolving Credit Loans that are Eurodollar Loans
and through April 30, 1998 on those Revolving Credit Loans that
are Alternate Base Rate Loans.
3. Waiver. The Bank hereby waives any Default or Event of Default
occurring prior to the date hereof as a result of the failure of the Borrower to
comply with Section 5.01(b)(ix), Section 5.01(n) and Section 5.03(d) of the
Agreement.
4. Amendments. The following amendments are hereby made to the
Agreement:
(a) The definition of "Maturity Date" shall be amended to read as
follows:
"MATURITY DATE" means (i) with respect to the Term Loan and the Term Loan Note,
March 30, 2001, and (ii) with respect to the Revolving Credit Loans and the
Revolving Credit Note, December 31, 2001. If the term "Maturity Date" is used
herein without reference to either the Term Loan or the Revolving Credit Loans,
it shall be deemed to refer to December 31, 2001."
(b) Section 2.03 of the Agreement shall be amended to read in its
entirety as follows:
"SECTION 2.03. REPAYMENT OF TERM LOAN NOTE. The principal balance of the Term
Loan Note shall be payable in thirteen (13) quarterly installments, each due on
the last Business Day of each calendar quarter beginning on the first such day
after the Drawdown and continuing on the last Business Day of each calendar
quarter thereafter. The first such quarterly installment shall be in the
principal amount of $375,000.00, each of the next eleven (11) such quarterly
principal installments shall be in the principal amount of $500,000.00 and the
thirteenth (13th) such quarterly principal installment shall be in an amount
equal to the then outstanding principal balance of the Term Loan Note."
(c) Section 5.01(n) of the Agreement shall be amended to read in
its entirety as follows:
"(n) Landlord Lien Waivers. Deliver to the Bank, not later than June 30, 1998,
the landlord lien waivers required by Section 3.01(1) of this Agreement."
(d) Section 5.02(l) of the Agreement shall be amended to read in
its entirety as follows:
<PAGE> 3
"(l) Losses. Incur a net loss (i) for either of the fiscal quarters ending June
30, 1998 or September 30, 1998 or (ii) for any fiscal year."
(e) Sections 5.03(b), (c) and (d) of the Agreement shall be
amended to read in their entirety as follows:
"(b) Fixed Charge Coverage Ratio. The Borrower will maintain a Fixed Charge
Coverage Ratio (to be tested quarterly, and except as set forth in (i) and (ii)
below for the four fiscal quarters then ended) of not less than (i) 1.15 to 1.00
for the fiscal quarter ending March 31, 1998; (ii) 1.20 to 1.00 for the two
fiscal quarters ending June 30, 1998, and for the three fiscal quarters ending
September 30, 1998; (iii) 1.20 to 1.00 for the four fiscal quarters ending
December 31, 1998; and (iv) 1.25 to 1.00 thereafter.
"(c) Funded Debt to EBITDA Ratio. The Borrower will maintain a Funded Debt to
EBITDA Ratio (to be tested quarterly for the four fiscal quarters then ended) of
not more than (i) for the fiscal quarter ending March 31, 1998, 2.25 to 1.00;
and (ii) 2.75 to 1.00 for each fiscal quarter thereafter. For purposes of
determining the Funded Debt to EBITDA Ratio, for the first three (3) fiscal
quarters of the Borrower following the closing of the Speed Acquisition, EBITDA
shall be measured only for the number of full or partial fiscal quarters that
have been completed since the date of this Agreement and then annualized,
subject to usual and customary year end adjustments, which adjustments shall be
disclosed and satisfactory to the Bank.
"(d) Adjusted Tangible Net Worth. The Borrower will maintain Adjusted Tangible
Net Worth of not less than (i) beginning on the day of the closing of the Speed
Acquisition and through March 6, 1998, the actual Adjusted Tangible Net Worth as
of the end of the day of such closing and from March 6, 1998 and through
December 30, 1998, ($1,781,000.00); (ii) on December 31, 1998 and through
December 30, 1999, $425,000.00; and (iii) beginning on December 31, 1999 and on
each succeeding December 31 and through the next succeeding December 30,
$1,000,000.00 in excess of the amount of Adjusted Tangible Net Worth on the
preceding December 31."
5. Effectiveness. This Amendment shall become effective upon the
occurrence of the following events and the receipt and satisfactory review by
the Bank and its counsel of the following documents:
(a) The Bank shall have received this Amendment, duly executed by
the Borrower and each Guarantor and an endorsement to the Term Loan Note in the
form of Exhibit A hereto, duly executed by the Borrower.
(b) The Bank's counsel shall have been paid their fees and
disbursements in connection with this Amendment.
6. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York.
7. Counterparts. This Amendment may be executed in nay number of
counterparts and by different parties hereto in separate counterparts, each of
which when
<PAGE> 4
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
8. Reaffirmation. By executing this Amendment, the Guarantors each
reaffirm their obligations under their respective Guaranties.
9. Ratification. Except as hereby amended, the Agreement and all
other Loan Documents executed in connection therewith shall remain in full force
and effect in accordance with their originally stated terms and conditions. The
Agreement and all other Loan Documents executed in connection therewith, as
amended hereby, are in all respects ratified and confirmed.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the year and date first above written.
KATZ DIGITAL TECHNOLOGIES, INC.
By: /s/ Gary Katz
-------------------------------
Gary Katz
Chief Executive Officer
ADVANCED DIGITAL SERVICES, INC.
By: /s/ Gary Katz
-------------------------------
Gary Katz
Chief Executive Officer
KATZ N.Y. ACQUISITION, INC.
By: /s/ Gary Katz
-------------------------------
Gary Katz
Chief Executive Officer
THE BANK OF NEW YORK
By: /s/ Scott E. Silverstein
-------------------------------
Scott E. Silverstein
Vice President
<PAGE> 6
EXHIBIT A
Endorsement No. 1
The undersigned, Katz Digital Technologies, Inc. (the "Borrower")
and The Bank of New York (the "Bank") hereby amend the Term Loan Note of the
Borrower dated January 8, 1998 to which this Endorsement No. 1 is attached (the
"Note") as hereinafter set forth. The Note has been issued pursuant to the Loan
Agreement described therein. The Loan Agreement has been amended by an Amendment
of even date herewith and this Endorsement No. 1 is to amend the Note to conform
to the Amendment. Accordingly, the Note is hereby amended to the extent that the
amount, the situs of execution and delivery, the date and the first paragraph
are deleted and the following is substituted therefor:
<TABLE>
<S> <C> <C>
$6,000,000.00 New York, New York
January 8, 1998
</TABLE>
FOR VALUE RECEIVED, KATZ DIGITAL TECHNOLOGIES, INC., a Delaware
corporation, having its principal place of business at 21 Penn
Plaza, New York, New York 10001 ("Borrower") promises to pay to the
order of THE BANK OF NEW YORK ("Bank") at its office located at 530
Fifth Avenue, New York, New York 10036, the principal sum of Six
Million ($6,000,000.00) Dollars in thirteen (13) quarterly principal
installments, each due on the last Business Day of each calendar
quarter beginning on the last Business Day of March 1998 and
continuing on the last Business Day of each calendar quarter
thereafter. The first such quarterly installment shall be in the
principal amount of $375,000.00, each of the next eleven (11) such
quarterly principal installments shall be in the principal amount of
$500,000.00 and the thirteenth (13th) such quarterly principal
installment shall be in an amount equal to the then outstanding
principal balance of this Note.
Except as expressly amended by this Endorsement No. 1, all the terms
and conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of May __, 1998.
KATZ DIGITAL TECHNOLOGIES, INC.
By: __________________________________
Gary Katz
Chief Executive Officer
THE BANK OF NEW YORK
By: __________________________________
Scott E. Silverstein
Vice President
<PAGE> 7
Endorsement No. 1
The undersigned, Katz Digital Technologies, Inc. (the "Borrower")
and The Bank of New York (the "Bank") hereby amend the Term Loan Note of the
Borrower dated January 8, 1998 to which this Endorsement No. 1 is attached (the
"Note") as hereinafter set forth. The Note has been issued pursuant to the Loan
Agreement described therein. The Loan Agreement has been amended by an Amendment
of even date herewith and this Endorsement No. 1 is to amend the Note to conform
to the Amendment. Accordingly, the Note is hereby amended to the extent that the
amount, the situs of execution and delivery, the date and the first paragraph
are deleted and the following is substituted therefor:
<TABLE>
<S> <C> <C>
$6,000,000.00 New York, New York
January 8, 1998
</TABLE>
FOR VALUE RECEIVED, KATZ DIGITAL TECHNOLOGIES, INC., a Delaware
corporation, having its principal place of business at 21 Penn
Plaza, New York, New York 10001 ("Borrower") promises to pay to the
order of THE BANK OF NEW YORK ("Bank") at its office located at 530
Fifth Avenue, New York, New York 10036, the principal sum of Six
Million ($6,000,000.00) Dollars in thirteen (13) quarterly principal
installments, each due on the last Business Day of each calendar
quarter beginning on the last Business Day of March 1998 and
continuing on the last Business Day of each calendar quarter
thereafter. The first such quarterly installment shall be in the
principal amount of $375,000.00, each of the next eleven (11) such
quarterly principal installments shall be in the principal amount of
$500,000.00 and the thirteenth (13th) such quarterly principal
installment shall be in an amount equal to the then outstanding
principal balance of this Note.
Except as expressly amended by this Endorsement No. 1, all the terms
and conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of May 11, 1998.
KATZ DIGITAL TECHNOLOGIES, INC.
By: /s/ Gary Katz
--------------------------------
Gary Katz
Chief Executive Officer
THE BANK OF NEW YORK
By: /s/ Scott E. Silverstein
--------------------------------
Scott E. Silverstein
Vice President
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT dated as
of June 1, 1998 by and between KATZ
DIGITAL TECHNOLOGIES, INC., a
Delaware corporation (the "Company"),
and MICHAEL SKLAR (the "Executive").
____________________________________
The parties hereto desire to provide for the Executive's continued
employment by the Company in accordance with the terms and provisions set forth
below:
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
The Company will employ the Executive, and the Executive will
work for the Company, as its President and Chief Operating Officer, for a term
commencing on the date hereof and terminating on December 31, 2002 unless sooner
terminated in accordance with Section 7 hereof. Such period, together with the
period of any extension or renewal of such employment, is referred to herein as
the "Employment Period."
2. DUTIES.
During the Employment Period, the Executive shall serve as the
President and Chief Operating Officer of the Company, and perform such further
duties as shall, from time to time, be reasonably assigned to the Executive by
the Chief Executive Officer of the Company consistent with his position and
abilities.
3. DEVOTION OF TIME.
During the Employment Period, the Executive shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by the Executive to
be detrimental to the best interests of the Company.
4. COMPENSATION.
In consideration for the services to be performed by the
Executive during the Employment Period hereunder, the Company shall compensate
the Executive at an annual base salary from the date hereof at the rate of
$300,000.00 per annum, with annual increases of 10% each year thereafter
commencing on January 1, 1999. In addition, the Executive shall be entitled to
receive such bonuses as recommended in the discretion of the Compensation
Committee of the Company's Board of Directors and approved by the Company's
Board of Directors.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES; ADDITIONAL
BENEFITS.
<PAGE> 2
5.1 The Executive shall be provided with an automobile to be
owned or leased by the Company or shall be reimbursed for the expenses in
connection with one automobile of the make and type approved by the Company. In
addition, the Company shall pay or reimburse the Executive for the cost of one
parking space.
5.2 The Company shall pay directly, or reimburse the Executive
for, all other reasonable and necessary expenses and disbursements incurred by
him for and on behalf of the Company in the performance of his duties under this
Agreement, including all costs associated with the maintenance and use of one
cellular telephone. For such purposes, the Executive shall submit to the Company
itemized reports of such expenses in accordance with the Company's policies.
5.3 The Executive shall be reimbursed for all business travel
and business entertainment expenses consistent with the Company's practices and
policies.
5.4 The Executive shall be entitled to paid vacations during
the Employment Period in accordance with the Company's then prevalent practices
for executive employees.
5.5 The Executive shall be entitled to participate in, and to
receive benefits under, any employee benefit plans of the Company (including,
without limitation, pension, profit sharing, group life insurance and group
medical insurance plans) as may exist from time to time for its executive
employees.
6. RESTRICTIVE COVENANT.
6.1 The services of the Executive are unique, extraordinary
and essential to the business of the Company, particularly in view of the
Executive's access to confidential information. Accordingly, the Executive
agrees that, during the Employment Period, and for a period of one year
thereafter, the Executive will not, without the prior written approval of the
Board of Directors of the Company, directly or indirectly, engage in any
business activity competitive with the business of the Company. Furthermore, the
Executive agrees that, during such period, he shall not solicit, directly or
indirectly, or affect to the Company's detriment any relationship of the Company
with any customer, supplier or employee of the Company or cause any customer or
supplier to refrain from entrusting additional business to the Company.
Notwithstanding anything to the contrary herein, if the employment of the
Executive hereunder is terminated by the Company other than for cause (as
defined in Section 7.3), the restraints on the Executive set forth in the
preceding two sentences shall be inapplicable after the Employment Period. In
the event that any of the provisions of this Section 6.1 shall be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provision shall be deemed reformed in any such
jurisdiction to the maximum time, geographic or other limitations permitted by
applicable law.
6.2 As used in this Section 6, the term "Company" shall mean
and include any and all corporations affiliated with the Company, which either
now exist or which may hereafter be organized.
<PAGE> 3
7. EARLIER TERMINATION.
7.1 The Executive's employment hereunder shall automatically
be terminated upon the death of the Executive or Executive's voluntarily leaving
the employ of the Company and, in addition, may be terminated, at the sole
discretion of the Company, as follows:
(a) Upon thirty (30) days' prior written notice by the
Company, in the event of the Executive's disability as set forth in Section 7.2
below; or
(b) Upon thirty (30) days' prior written notice by the
Company, in the event that the Company terminates the Executive's employment
hereunder for cause as set forth in Section 7.3 below.
7.2 The Executive shall be deemed disabled hereunder, if in
the opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, he shall become physically or mentally unable to perform his
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.
7.3 For purposes hereof, "cause" shall mean the following: (a)
the Executive's willful malfeasance or gross negligence; or (b) the material
breach of any covenant made by the Executive hereunder, and the Executive's
failure to cure such conduct or event constituting "cause" within 30 days after
written notice thereof.
7.4 In the event that this Agreement shall be terminated due
to the Executive's death or disability, then the Company shall pay to the
Executive or his personal representatives, as the case may be, severance pay in
a lump sum amount equal to base annual salary for a period of twelve months as
set forth in Section 4 hereof. If, however, this Agreement shall be terminated
for any other reason whatsoever, then the Company shall not be obligated to make
any severance payments whatsoever to the Executive hereunder, except for the
compensation set forth in Section 4 hereof which shall have accrued but be
unpaid at the effective time of termination.
8. NO REQUIREMENT OF RELOCATION.
The Company expressly agrees that the Executive, as a
condition of his employment, need not relocate his residence from the community
in which he presently resides.
9. SERVICE AS DIRECTOR.
During the Employment Period, the Executive shall, if elected
or appointed, serve as a Director of the Company and/or any subsidiary of the
Company upon such terms as shall be mutually agreed upon by the Executive and
the Company.
<PAGE> 4
10. ASSIGNMENT.
This Agreement, as it relates to the employment of the
Executive, is a personal contract and the rights and interests of the Executive
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as otherwise set forth herein. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns, including
without limitation, any corporation or other entity into which the Company is
merged or which acquires all of the outstanding shares of the Company's capital
stock, or all or substantially all of the assets of the Company.
11. NOTICES.
Any notice required or permitted to be given pursuant to this
Agreement shall be deemed given three (3) business days after such notice is
mailed by certified mail, return receipt requested, addressed as follows: (i) if
to the Executive, at 21 Penn Plaza, Eighth Floor, New York, New York 10001; and
(ii) if to the Company, at 21 Penn Plaza, Eighth Floor, New York, New York
10001, or at such other address as any such party shall designate by written
notice to the other party. Copies of all notices shall also be provided to
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New
York, New York 10022-1200.
12. WAIVER, MODIFICATION.
The terms of this Agreement may not be waived or modified
except by an agreement in writing executed by the parties hereto. The waiver by
either party of any breach of this Agreement must be in writing and shall not be
deemed to be a waiver of any prior or succeeding breach.
13. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with the laws of the State of New York.
14. SEVERABILITY.
If, at any time subsequent to the date hereof, any provision
of this Agreement shall be held by any court of competent jurisdiction to be
illegal, void or unenforceable, such provision shall be of no force and effect,
but the illegality or enforceability of such provision shall have no effect upon
and shall not impair the enforceability of any other provision of this
Agreement.
15. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether
<PAGE> 5
written or oral, of the parties hereto relating to the transactions contemplated
by this Agreement; provided, however, that it is the intention of the parties
that this Agreement shall be interpreted and applied in conjunction with the
terms of any option, warrant or other right now in existence or hereinafter
granted to the Executive to acquire shares of capital stock of the Company. In
the event of any conflict, however, the terms of this Agreement shall govern and
prevail. This Agreement may be amended only in writing executed by the parties
hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the day and year first above written.
KATZ DIGITAL TECHNOLOGIES, INC.
By: /s/ Gary Katz
-----------------------------------
Gary Katz, Chief Executive Officer
/s/ Michael Sklar
-----------------------------------------
MICHAEL SKLAR
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 324,250
<SECURITIES> 0
<RECEIVABLES> 9,197,326
<ALLOWANCES> 361,238
<INVENTORY> 455,731
<CURRENT-ASSETS> 10,052,421
<PP&E> 11,705,512
<DEPRECIATION> 5,104,148
<TOTAL-ASSETS> 28,691,906
<CURRENT-LIABILITIES> 6,555,806
<BONDS> 0
0
0
<COMMON> 5,040
<OTHER-SE> 10,976,017
<TOTAL-LIABILITY-AND-EQUITY> 28,691,906
<SALES> 22,071,051
<TOTAL-REVENUES> 22,071,051
<CGS> 10,818,800
<TOTAL-COSTS> 8,799,640
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78,549
<INTEREST-EXPENSE> 587,142
<INCOME-PRETAX> 1,894,532
<INCOME-TAX> 879,325
<INCOME-CONTINUING> 1,015,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,015,207
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
