<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) July 30, 1997
VDI MEDIA
(Exact Name of Registrant as Specified in its Charter)
California 0-21917 95-4272619
(State or Other Jurisdiction (Commission (I.R.S. Identification)
of Incorporation) File Number)
6200 Sunset Boulevard
Hollywood, California 90028
(Address of Principal Executive Offices) (Zip Code)
(213) 957-5500
Registrant's telephone number, including area code
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<PAGE>
The undersigned registrant (the "Registrant") hereby amends the following
items of its Current Report on Form 8-K dated July 30, 1997 (the "Report") as
follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The Registrant amends the information set forth in Items 7(a) and 7(b) of
the Report and restates such items in their entirety as set forth below.
(a) Financial Statements of Business Acquired
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
September 17, 1997
To the Board of Directors and Shareholder of
Multi-Media Services, Inc.
In our opinion the accompanying balance sheet and the related statements of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Multi-Media Services, Inc. at April
30, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
<PAGE>
MULTI-MEDIA SERVICES, INC.
BALANCE SHEET
APRIL 30, 1997 AND 1996
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1997 1996
ASSETS
Current assets:
Cash $ 50,000 $ 155,000
Accounts receivable, net of allowance
of $23,000 in 1997 1,783,000 1,645,000
Income tax receivable 40,000
Inventory 146,000 108,000
Prepaid expenses and other assets 19,000 30,000
Deferred income taxes 49,000 33,000
---------- ----------
Total current assets 2,087,000 1,971,000
Property and equipment, net (Note 3) 2,210,000 1,666,000
Deposits 34,000 13,000
---------- ----------
$4,331,000 $3,650,000
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 685,000 $ 540,000
Accrued expenses 174,000 145,000
Sales tax payable 23,000 24,000
Income taxes payable 9,000
Notes payable, current 735,000 185,000
Note payable to shareholder 1,509,000 1,462,000
---------- ----------
Total current liabilities 3,126,000 2,365,000
Notes payable, net of current portion 629,000 583,000
Deferred income taxes 60,000 62,000
---------- ----------
3,815,000 3,010,000
---------- ----------
Commitments (Note 6)
Shareholder's equity:
Common stock, $1 par value, 75,000 shares
authorized; 47,000 shares issued and
outstanding 47,000 47,000
Retained earnings 469,000 593,000
---------- ----------
Total shareholder's equity 516,000 640,000
---------- ----------
$4,331,000 $3,650,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA SERVICES, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
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1997 1996
Sales $6,995,000 $5,941,000
Cost of sales 5,292,000 4,339,000
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Gross profit 1,703,000 1,602,000
Selling, general and administrative expense 1,701,000 1,333,000
---------- ----------
Operating income 2,000 269,000
---------- ----------
Interest expense 193,000 194,000
Interest income 2,000 1,000
---------- ----------
(Loss) income before income taxes (189,000) 76,000
---------- ----------
(Benefit) provision for income taxes (65,000) 43,000
---------- ----------
Net (loss) income (124,000) 33,000
Retained earnings, beginning of year 593,000 560,000
---------- ----------
Retained earnings, end of year $ 469,000 $ 593,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
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1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(124,000) $ 33,000
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Depreciation 630,000 557,000
Provision for bad debts 50,000
Deferred income taxes (18,000) 7,000
Changes in assets and liabilities:
Accounts receivable (188,000) 104,000
Inventory (38,000) (29,000)
Prepaid expenses and other assets 11,000 1,000
Deposits (21,000)
Accounts payable 145,000 22,000
Accrued expenses 29,000 (296,000)
Sales tax payable (1,000) 2,000
Income taxes payable (49,000) 9,000
--------- ----------
Net cash provided by operating activities 426,000 410,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (665,000) (386,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings 400,000 832,000
Loan repayments (313,000) (1,002,000)
Net increase in note payable to shareholder 47,000 212,000
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Net cash provided by financing activities 134,000 42,000
--------- ----------
Net (decrease) increase in cash (105,000) 66,000
Cash, beginning of year 155,000 89,000
--------- ----------
Cash, end of year $ 50,000 $ 155,000
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SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest $ 190,000 $ 192,000
Income taxes $ 4,000 $ 29,000
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended April 30, 1997, long-term debt of $509,000 was incurred to
purchase equipment and a vehicle.
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 1
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1. THE COMPANY
Multi-Media Services, Inc. (the Company) provides broadcast duplication,
distribution and computerized storage services primarily to advertising
agencies throughout the United States. The Company's principal
administrative facility is located in Hollywood, California. Additional
duplication and distribution facilities are located in Chicago, New York
City and San Francisco.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES AND RECEIVABLES. The Company records revenues and receivables at
the time products are delivered to customers. Although sales and
receivables are concentrated in the advertising industry, management
believes credit risk is limited due to the financial stability of the
customer base.
CASH AND CASH EQUIVALENTS. The Company considers cash equivalents to be
all highly liquid investments with an original maturity of three months or
less.
INVENTORIES. Inventories comprise raw materials, principally tape stock,
and are stated at the lower of cost or market. Cost is determined using
the average cost method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Expenditures for additions and major improvements are capitalized.
Maintenance, repairs and minor improvements are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, generally five years. Amortization of
leasehold improvements is computed using the straight-line method over the
lesser of the estimated useful lives of the improvements or the remaining
lease term.
INCOME TAXES. Income taxes are provided for using the liability approach
which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial statement and tax bases of assets and liabilities at the
applicable expected tax rates. A valuation allowance is provided when it
is more likely than not that some portion or all the deferred tax assets
will not be realized.
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 disclosures 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.
<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 2
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3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1997 1996
Automobiles $ 103,000 $ 88,000
Furniture and fixtures 403,000 366,000
Leasehold improvements 665,000 554,000
Dub center equipment 4,859,000 3,960,000
Computer network system 185,000 188,000
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6,215,000 5,156,000
Less accumulated depreciation (4,005,000) (3,490,000)
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$ 2,210,000 $ 1,666,000
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Depreciation expense was $630,000 and $557,000 for the years ended April
30, 1997 and 1996, respectively.
4. BANK LINE OF CREDIT
The Company has a $400,000 revolving credit agreement with a bank. Amounts
available pursuant to this agreement are secured by substantially all of
the Company's assets. In addition, repayment of amounts borrowed is
guaranteed by the Company's shareholder. Interest accrues at a rate of
9.25%.
5. LONG-TERM DEBT AND NOTES PAYABLE
NOTE PAYABLE TO RELATED PARTY
The Company is obligated on a note payable to a shareholder, as described
in Note 8.
EQUIPMENT FINANCING
The Company has financed the purchase of equipment through the issuance of
notes payable to banks. These notes bear interest at rates ranging from
6.95% to 9.25% and are payable in monthly installments through April 2001.
<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 3
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Annual maturities of long-term debt are as follows:
YEAR ENDED
APRIL 30, AMOUNT
1998 $2,244,000
1999 315,000
2999 261,000
2001 53,000
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$2,873,000
----------
----------
6. COMMITMENTS
The Company leases office and production facilities in California, New York
and Illinois with various lease expiration dates through 2005. Total
rental expense was approximately $620,000 and $541,000 for the years ended
April 30, 1997 and 1996, respectively.
Approximate minimum annual rentals under these noncancellable operating
leases are as follows:
YEAR ENDED
APRIL 30, AMOUNT
1998 $ 567,000
1999 453,000
2000 423,000
2001 430,000
2002 436,000
Thereafter 769,000
----------
$3,078,000
----------
----------
<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 4
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7. INCOME TAXES
The provision for income taxes is summarized as follows:
YEAR ENDED APRIL 30,
1997 1996
Current tax (benefit) expense
Federal $ (47,000) $ 31,000
State 5,000
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Total current (47,000) 36,000
---------- ----------
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Deferred tax (benefit) expense
Federal $ (4,000) $ 6,000
State (14,000) 1,000
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Total deferred (18,000) 7,000
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$ (65,000) $ 43,000
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A reconciliation of income tax expense computed at the federal statutory
rates to the Company's effective income tax expense is as follows:
YEAR ENDED APRIL 30,
1997 1996
Tax expense at statutory rate $ (64,000) $ 26,000
State franchise tax, net of
federal benefit (11,000) 5,000
Meals and entertainment 11,000 10,000
Officer life insurance 2,000 2,000
Other (3,000)
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$ (65,000) $ 43,000
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<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 5
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The tax effect of net operating loss (NOL) and tax credit carryforwards and
significant temporary differences between reported and taxable earnings that
give rise to net deferred tax liabilities were as follows:
APRIL 30,
1997 1996
DEFERRED TAX ASSETS:
Benefit from net operating loss
carryforward $ 14,000
Tax credits 82,000 $ 69,000
Allowance for doubtful accounts 9,000
Accrued vacation 40,000 33,000
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Gross deferred tax assets 145,000 102,000
Valuation allowance (54,000) (46,000)
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DEFERRED TAX LIABILITIES:
Accumulated deprecation 102,000 85,000
---------- ----------
Gross deferred tax liabilities 102,000 85,000
---------- ----------
Net deferred tax liabilities $ (11,000) $ (29,000)
---------- ----------
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The remaining unutilized federal NOL carryforward was approximately $15,000
at April 30, 1997. Federal NOL carryforwards that have not been utilized
expire in 2012. Tax credits of approximately 82,000 expire in varying
amounts from 2008 through 2012. A valuation allowance is provided since it
is more likely than not that the tax benefits of net operating loss
carryforwards and certain tax credits will not be realized.
8. RELATED PARTY TRANSACTIONS
The Company leases its principal business facility in California from a
shareholder of the Company. This lease provides for monthly payments of
$19,000 through April 14, 2005. Rent expense on this lease, for the years
ended April 30, 1997 and 1996, was $229,000.
The Company is also obligated on a note payable to a shareholder. Interest
is accrued and paid monthly at 8 percent. Principal and any unpaid
interest are due on April 30, 1998. Interest expense on this note was
$117,000 and $95,000 for the years ended April 30, 1997 and 1996,
respectively.
<PAGE>
MULTI-MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996 PAGE 6
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9. DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors a profit sharing plan that covers substantially all
eligible employees. Contributions to the plan are discretionary and are
limited to 15% of aggregate annual compensation of the participating
employees. There were no contributions for the years ended April 30, 1997
and 1996.
During 1996 the Company established a 401(k) profit sharing plan. Company
contributions are also discretionary and are limited to 4% of eligible
wages. Company contributions for the year ended April 30, 1997 totaled
$11,000.
10. SALES TO MAJOR CUSTOMERS
Sales to a single customer amounted to $1,129,000 and $1,284,000 for the
years ended April 30, 1997 and 1996, respectively, which represented 16%
and 22%, respectively, of total sales for the years then ended. Sales to
another customer amounted to $700,000 for the year ended April 30, 1996,
which represented 12% of total sales.
11. SUBSEQUENT EVENT
In July 1997, the Company's shareholder agreed to sell all outstanding
shares of the Company's common stock, effective July 31, 1997, to VDI
Media. As part of this transaction, VDI Media paid the outstanding
principle and interest on the note payable to shareholder.
During July 1997 the credit line available under the revolving credit
agreement with the bank as described in Note 4 was increased to $600,000.
<PAGE>
Item 7 (a) (2) Interim Period Financial Statements
Multi-Media Services, Inc.
Balance Sheet
-------------
JUNE 30, 1997
-------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 129,000
Accounts receivable, net 1,782,000
Inventories 146,000
Deferred income taxes 49,000
Prepaid expenses 53,000
-----------
Total current assets 2,159,000
Property and equipment, net 2,194,000
Intangible and other assets 41,000
-----------
Total assets 4,394,000
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 638,000
Other accrued liabilities 176,000
Current portion of notes payable 896,000
Note payable to shareholder 1,539,000
-----------
Total current liabilities 3,249,000
-----------
Deferred income taxes 60,000
Long-term portion of notes payable 596,000
Shareholders' equity:
Common stock 47,000
Retained earnings 442,000
-----------
Total shareholders' equity 489,000
-----------
Total liabilities and shareholder's equity $ 4,394,000
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-----------
<PAGE>
Statement of Operations
For the Two Month Period Ending June 30, 1997 and 1996
1997 1996
----------- ----------
(UNAUDITED)
Sales $ 1,065,000 $ 961,000
Cost of Sales 822,000 683,000
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Gross Profit 243,000 278,000
Marketing, general and administrative expenses 236,000 141,000
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Income from operations 7,000 137,000
Interest expense 35,000 32,000
Other income 1,000
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(Loss) income before income taxes (27,000) 105,000
Provision for income taxes 36,000
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Net (loss) income $ (27,000) $ 69,000
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<PAGE>
Multi-Media Services, Inc.
Statement of Cash Flows
For the Two Month Period Ending June 30, 1997 and 1996
1997 1996
----------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income (27,000) 69,000
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Depreciation 101,000 92,000
Deferred income taxes 23,000
Changes in assets and liabilities:
Accounts receivable 1,000 10,000
Inventory 14,000
Prepaid expenses and other assets 6,000 10,000
Deposits (7,000) (8,000)
Accounts payable (47,000) (80,000)
Accrued expenses (21,000) (27,000)
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Net cash provided by operating activities 6,000 103,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (85,000) (36,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings 164,000
Loan repayments (36,000) (28,000)
Net increase in note payable to shareholer 30,000 (1,000)
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Net cash provided by (used for) financing
activities 158,000 (29,000)
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Net increase in cash 79,000 38,000
Cash, beginning of period 50,000 155,000
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Cash, end of period 129,000 193,000
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<PAGE>
Multi-Media Services, Inc.
Notes to Interim Financial Statements
1. The financial statements included herein are based in part on estimates and
include such adjustments (consisting solely of normal, recurring
adjustments) which management believes are necessary for fair presentation
of the financial position of Multi-Media Services Inc. (Multi-Media) at
June 30, 1997 and the results of its operations and its cash flows for the
two month periods ended June 30, 1997 and 1996. The financial statements
and related notes have been prepared in accordance with generally accepted
accounting principles applicable to interim periods. Consequently, they do
not include all generally accepted accounting disclosures required for
complete annual financial statements. These financial statements should be
read in conjunction with the audited financial statements and the notes
thereto for the year ended April 30, 1997 contained in this current report
on Form 8-K.
The results of operations for the periods presented are not necessarily
indicative of results to be expected for any subsequent fiscal year or
interim period thereof.
2. On July 30, 1997, VDI Media acquired all of the outstanding shares of
Multi-Media for a purchase price of $7.0 million less $1.7 million (the
amount by which Multi-Media's management represented its liabilities,
including long-term liabilities, exceeded its current assets as of June 30,
1997), plus a post-closing adjustment based upon Multi-Media's closing
financial statements. In addition, VDI Media may be required to pay, as an
earn-out, up to $100,000, with respect to each quarter in the period
commencing January 1, 1998 to December 31, 2004 in which Multi-Media
achieves certain financial goals. Total earn-out payments can not exceed
$2 million.
<PAGE>
(b) Pro Forma Financial Information
The following unaudited pro forma financial statements give effect to the
acquisition of Multi-Media. The unaudited pro forma combined balance sheet
presents the combined financial position of the Company and Multi-Media at June
30, 1997 as if the Company had acquired Multi-Media on that date. Such pro
forma information is based upon the unaudited historical balance sheet data of
the Company and Multi-Media on June 30, 1997. The unaudited pro forma combined
statements of operations for the six months ended June 30, 1997 and the most
recently completed fiscal year ended December 31, 1996, reflect adjustments as
if the transaction had occurred on January 1, 1996. The acquisition is being
accounted for as a purchase.
The historical results of operations of Multi-Media for the three months ended
March 31, 1997 have been included in both the pro forma statement of operations
for the six months ended June 30, 1997 and for the year ended December 31, 1996.
In management's opinion, the inclusion of this three month period in both pro
forma presentations does not materially impact the pro forma results. For the
three month period ended March 31, 1997, Multi-Media had revenues of $1,962,000
and a net loss of $153,000.
The unaudited pro forma combined financial statements reflect the Company's
allocation of the purchase price of approximately $5.3 million to the assets and
liabilities of Multi-Media based upon the Company's current estimates of the
relative values of the assets acquired and liabilities assumed. The final
allocation of the purchase price may vary as additional information is obtained,
and differ from that used in the unaudited pro forma combined financial
statements.
The unaudited pro forma combined financial statements should be read in
conjunction with the separate historical financial information and related notes
of Multi-Media, appearing in Item 7 (a) of this current report on Form 8-K and
the historical financial statements, related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the Company
for the year ended December 31, 1996, and the six months ended June 30, 1997,
previously filed with the Securities and Exchange Commission. The pro forma
information is not necessarily indicative of the results that would have been
reported had the acquisition actually occurred on the dates specified, nor is it
necessarily indicative of the future results of the combined companies.
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
The following unaudited pro forma combined balance sheet presents the combined
financial position of the Company and Multi-Media as of June 30, 1997. Such
unaudited pro forma information is based on the combined historical balance
sheets of the Company and Multi-Media as of June 30, 1997, giving effect to the
pro forma adjustments described in the accompanying Notes to Pro Forma Combined
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED)
-------------------------------------------------------------
PRO FORMA
-----------------------------
MULTI-MEDIA
VDI MEDIA SERVICES ADJUSTMENTS COMBINED
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,747,000 $ 129,000 $(6,860,000) (A),(B) $4,016,000
Accounts receivable, net 5,999,000 1,782,000 7,781,000
Other receivables 5,000 5,000
Inventories 155,000 146,000 301,000
Deferred income taxes 49,000 49,000
Prepaid expenses 662,000 53,000 715,000
------------- ---------- ------------- ------------
Total current assets 17,568,000 2,159,000 (6,860,000) 12,867,000
Property and equipment, net 5,448,000 2,194,000 - 7,642,000
Intangible and other assets 2,338,000 41,000 4,832,000 (A) 7,211,000
------------- ---------- ------------- ------------
Total assets 25,354,000 4,394,000 (2,028,000) 27,720,000
------------- ---------- ------------- ------------
------------- ---------- ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,276,000 $ 638,000 $ 2,914,000
Other accrued liabilities 1,794,000 176,000 1,970,000
Current portion of notes payable 14,000 896,000 910,000
Note payable to shareholder 1,539,000 (1,539,000) (B) -
Current portion of capitalized lease
obligations 814,000 814,000
Deferred income taxes 185,000 - 185,000
------------- ---------- ------------- ------------
Total current liabilities 5,083,000 3,249,000 (1,539,000) 6,793,000
------------- ---------- ------------- ------------
Deferred income taxes 60,000 60,000
Capitalized lease obligations, less current portion 855,000 855,000
Long-term portion of notes payable 596,000 596,000
Shareholders' equity:
Common stock 19,056,000 47,000 (47,000) (A) 19,056,000
Retained earnings 360,000 442,000 (442,000) (A) 360,000
------------- ---------- ------------- ------------
Total shareholders' equity 19,416,000 489,000 (489,000) 19,416,000
------------- ---------- ------------- ------------
Total liabilities and shareholders' equity $ 25,354,000 $4,394,000 $ (2,028,000) $ 27,720,000
------------- ---------- ------------- ------------
------------- ---------- ------------- ------------
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations presents
the combined results of operations of the Company and Multi-Media for the
year ended December 31, 1996 by combining the historical statement of
operations of the Company for the year ended December 31, 1996 with the
historical statement of operations of Multi-Media for the twelve months ended
March 31, 1997, giving effect to the pro forma adjustments described in the
accompanying Notes to Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED TWELVE MONTHS
12/31/96 ENDED 3/31/97 PRO FORMA
---------- ------------- -------------------------
MULTI-MEDIA (UNAUDITED)
VDI MEDIA SERVICES ADJUSTMENT COMBINED
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sales $ 24,780,000 $ 6,974,000 $ - $ 31,754,000
Cost of Sales 14,933,000 5,083,000 (339,000) (C) 19,677,000
------------ ------------- ---------- ------------
Gross Profit 9,847,000 1,891,000 339,000 12,077,000
Marketing, general and administrative expenses 5,720,000 1,716,000 242,000 (D) 7,678,000
------------ ------------- ---------- ------------
Income from operations 4,127,000 175,000 97,000 4,399,000
Interest expense 291,000 188,000 479,000
Other income 68,000 2,000 70,000
------------ ------------- ---------- ------------
Income (loss) before income taxes 3,904,000 (11,000) 97,000 3,990,000
Provision (benefit) for income taxes 68,000 (5,000) 136,000 (E) 199,000
------------ ------------- ---------- ------------
Net income (loss) $ 3,836,000 $ (6,000) $ (39,000) $ 3,791,000
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
Earnings per share $ 0.57 $ 0.57
------------ ------------
------------ ------------
Weighted average number of shares 6,694,503 6,694,503
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations presents the
combined results of operations of the Company and Multi-Media for the six months
ended June 30, 1997 by combining the historical statements of operations of the
Company and Multi-Media for the period, giving effect to the pro forma
adjustments described in the accompanying Notes to Pro Forma Combined Financial
Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997 PRO FORMA
--------------------------- -------------------------
MULTI-MEDIA
VDI MEDIA SERVICES ADJUSTMENT COMBINED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 17,298,000 $ 3,643,000 $ - $20,941,000
Cost of Sales 10,417,000 2,841,000 (181,000) (C) 13,077,000
------------ ----------- ----------- -----------
Gross Profit 6,881,000 802,000 181,000 7,864,000
Marketing, general and administrative expenses 4,236,000 1,100,000 121,000 (D) 5,457,000
------------ ----------- ----------- -----------
Income (loss) from operations 2,645,000 (298,000) 60,000 2,407,000
Interest expense 165,000 110,000 275,000
Other income 151,000 2,000 153,000
------------ ----------- ----------- -----------
Income (loss) before income taxes 2,631,000 (406,000) 60,000 2,285,000
Provision (benefit) for income taxes 942,000 (130,000) 72,000 (E) 884,000
------------ ----------- ----------- -----------
Net income (loss) $ 1,689,000 $ (276,000) $ (12,000) $ 1,401,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Earnings per share $ 0.20 $ 0.16
------------ -----------
------------ -----------
Weighted average number of shares 8,551,333 8,551,333
------------ -----------
------------ -----------
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The historical results of operations of Multi-Media for the three months ended
March 31, 1997 have been included in both the pro forma statement of operations
for the six months ended June 30, 1997 and for the year ended December 31, 1996.
In management's opinion, the inclusion of this three month period in both pro
forma presentations does not materially impact the pro forma results. For the
three month period ended March 31, 1997, Multi-Media had revenues of $1,962,000
and a net loss of $153,000.
The following significant adjustments were made to the historical balance sheets
of the Company and Multi-Media at June 30, 1997 or historical statements of
operations of the Company and Multi-Media, as applicable, to arrive at the pro
forma combined balance sheet and pro forma combined statements of operations:
(A) Pro forma adjustments have been made to (i) record estimated goodwill
of $4.8 million equal to the excess of the initial consideration over the
fair market value assigned to specific assets less liabilities assumed,
(ii) eliminate the equity of Multi-Media and (iii) reflect the use of
available cash to purchase Multi-Media.
(B) Pro forma adjustments have been made to cash and current portion of
notes payable to reflect the repayment of the note payable to the former
shareholder of Multi-Media made at the closing of the acquisition in
accordance with the purchase agreement.
(C) A pro forma adjustment has been made to cost of sales to reflect a
reduction for salaries of employees terminated in connection with the
acquisition of Multi-Media which were effected immediately thereafter.
The related severance costs were not significant.
<PAGE>
(D) A pro forma adjustment has been made to marketing, general and
administrative expenses to reflect the amortization over 20 years of the
goodwill related to the acquisition of Multi-Media.
(E) A pro forma adjustment has been made to reflect the income tax effects
of the pro forma adjustments described above.
<PAGE>
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, the
undersigned, thereunto duly authorized, in Los Angeles, California on
October 13, 1997.
Date: October 13, 1997 VDI Media
By: /s/ Donald Stine
-------------------------------
Name: Donald Stine
Title: Chief Financial Officer
