<PAGE>
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) NOVEMBER 17, 1998
VDI MEDIA
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 0-21917 95-4272619
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
6920 SUNSET BOULEVARD
HOLLYWOOD, CALIFORNIA 90028
(Address of Principal Executive Offices) (Zip Code)
(323) 957-5500
Registrant's telephone number, including area code
<PAGE>
The undersigned registrant (the "Registrant") hereby amends the following
items of its Current Report on Form 8-K dated November 17, 1998 (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.
<PAGE>
Item 7(a) REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
DUBS Incorporated
In our opinion the accompanying balance sheet and the related statements of
operations, shareholder's deficit and of cash flows present fairly, in all
material respects, the financial position of DUBS Incorporated at September 30,
1998 and the results of its operations and its cash flows for the nine months
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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Costa Mesa, California
January 6, 1999
<PAGE>
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
ASSETS
<S> <C>
Current assets:
Cash $ 101,424
Accounts receivable, net of allowance for
doubtful accounts of $423,249 2,603,215
Inventories 362,062
Prepaid expenses and other current assets 236,404
-------------
Total current assets 3,303,105
Property and equipment, net 2,262,933
Other assets 139,604
-------------
$ 5,705,642
-------------
-------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Accounts payable 1,265,107
Accrued expenses 754,584
Due to shareholder 49,401
Line of credit (Note 6) 1,180,000
Current portion of note payable (Note 7) 1,040,000
Capital lease obligations (Note 8) 23,546
-------------
Total current liabilities 4,312,638
Note payable, less current portion (Note 7) 1,866,659
-------------
6,179,297
Commitments and contingencies (Note 8)
Shareholder's deficit:
Common stock, $1 par value; 200 shares authorized,
200 shares issued and outstanding 200
Additional paid-in capital 750,000
Accumulated deficit (1,223,855)
-------------
Total shareholder's deficit (473,655)
-------------
$ 5,705,642
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
1998
<S> <C>
Revenues $ 12,070,331
Costs of goods sold 8,957,765
---------------
Gross profit 3,112,566
Selling, general and administrative expense 2,840,629
---------------
Operating income 271,937
Interest expense 336,155
---------------
Net loss before income taxes (64,218)
Provision for income tax benefit 930
---------------
Net loss $ (65,148)
---------------
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL TOTAL
PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
-------- -------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 200 $ 200 $ 250,000 $ (1,158,707) $ (908,507)
Net loss (65,148) (65,148)
Contribution from shareholder 500,000 500,000
-------- -------- ----------- -------------- ---------------
Balance at September 30, 1998 200 $ 200 $ 750,000 $ (1,223,855) $ (473,655)
-------- -------- ----------- -------------- ---------------
-------- -------- ----------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
1998
<S> <C>
Cash flows from operating activities:
Net loss $ (65,148)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 760,156
Provision for doubtful accounts 142,641
Changes in assets and liabilities:
Decrease in accounts receivable 87,513
Decrease in inventory 123,682
Increase in prepaid expenses and other assets (22,689)
Decrease in accounts payable (834,824)
Decrease in accrued expenses (59,879)
------------
Net cash provided by operating activities 131,452
Cash flows used in investing activities:
Capital expenditures (191,488)
Loans to shareholders (28,060)
Payments received on shareholder loans 119,497
------------
Net cash used in investing activities (100,051)
Cash flows from financing activities:
Principal payments on capital lease obligations (61,772)
Increase in line of credit 140,000
Proceeds from due to shareholder 49,401
Repayment of note payable (560,000)
Contribution from shareholder 500,000
------------
Net cash provided by financing activities 67,629
Net increase in cash 99,030
Cash, beginning of period 2,394
------------
Cash, end of period $ 101,424
------------
------------
Supplemental disclosures of cash flow information:
Cash paid for interest: $ 315,782
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 PAGE 6
- -------------------------------------------------------------------------------
1. THE COMPANY
DUBS Incorporated (the Company) is located in Hollywood, California and
provides high quality video duplication, distribution and related
value-added services. The Company's services consist of (i) the physical
and electronic delivery of broadcast quality advertising, including spots,
trailers, electronic press kits and infomercials, and syndicated television
programming to television stations, cable companies and other end-users
nationwide and (ii) a broad range of video services, including the
duplication of video in all formats, electronic storage, standards
conversions, closed captioning and transcription services, and video
encoding for air play verification purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
REVENUES AND RECEIVABLES
The Company records revenues and receivables at the time products are
delivered to customers.
CASH AND CASH EQUIVALENTS
The Company considers cash equivalents to be all highly liquid investments
with an original maturity of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All current assets and liabilities are carried at cost, which approximates
fair value because of the short maturity of those instruments. The
recorded amounts of the Company's long-term obligations also approximate
fair value as current interest rates offered to the Company for debts of
similar maturities are substantially the same.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consists primarily of accounts receivable.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. An allowance for uncollectable
accounts receivable is maintained based upon expected collectability of all
accounts receivable.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 PAGE 7
- -------------------------------------------------------------------------------
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
The company is an "S" corporation for both federal and state income tax
purposes. Accordingly, the liability for income taxes is the
responsibility of the Company's shareholder with the exception of a 1.5%
surtax, based upon the Company's taxable income, imposed by the state.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. A valuation
allowance is provided if it is more likely than not that some or all of the
deferred tax asset will not be realized. Deferred tax assets and
liabilities were not material at September 30, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"). SFAS No. 130 establishes
standards for reporting comprehensive income, defined as all changes in
equity from nonowner sources. The Company did not have any other
comprehensive income for the nine months ended September 30, 1998.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 establishes standards for the way public enterprises report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports issued to stockholders. Adoption of
SFAS No. 131 did not have a material effect on the Company's financial
position or results of operations.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets comprised the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1998
-------------
<S> <C>
Prepaid insurance $ 167,481
Other prepaid expenses and current assets $ 68,923
-------------
$ 236,404
-------------
-------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 PAGE 8
- -------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment comprised the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1998
------------
<S> <C>
Machinery and equipment $ 6,267,301
Leasehold improvements 1,058,850
Vehicles 93,675
Computers 511,505
------------
7,931,331
Less accumulated depreciation and amortization (5,668,398)
------------
$ 2,262,933
------------
------------
</TABLE>
Assets acquired under capitalized lease obligations are included in
property and equipment and totaled $288,283, with related accumulated
amortization of $207,075 at September 30, 1998.
5. ACCRUED EXPENSES
Accrued expenses comprised the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1998
------------
<S> <C>
Accrued payroll $ 376,047
Other accrued liabilities 378,537
------------
------------
$ 754,584
------------
------------
</TABLE>
6. LINE OF CREDIT
In March 1996, the Company established a line of credit with a bank. The
line of credit provides for borrowings up to $1,200,000, as amended, and is
due and payable December 1, 1998. Borrowings bear interest at prime rate
(8.25% at September 30, 1998) plus 0.75%. The line of credit is secured by
substantially all of the assets of the Company and is guaranteed by the
Company's sole shareholder. The terms of the line of credit agreement
include covenants regarding the maintenance of various financial ratios.
As of September 30, 1998, the Company was not in compliance with certain of
these covenants and obtained a waiver with respect to these covenants from
the bank. In connection with the acquisition of DUBS Incorporated by VDI
Media (Note 11), the outstanding principal plus accrued interest was
repaid.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 PAGE 9
- -------------------------------------------------------------------------------
7. NOTE PAYABLE
In March 1996, the Company issued a $5,200,000 promissory note payable to a
bank. The note is due and payable March 15, 2001 and bears interest at
prime rate (8.25% at September 30, 1998) plus 1.0% per annum. The Company
is required to make monthly principal payments of $86,667. The terms of
the note payable include covenants regarding the maintenance of various
financial ratios. As of September 30, 1998, the Company was not in
compliance with certain of these covenants and obtained a waiver with
respect to these covenants from the bank. In connection with the
acquisition of DUBS Incorporated by VDI Media (Note 11), the outstanding
principal amount plus accrued interest was repaid.
8. LEASING AGREEMENTS AND COMMITMENTS
The Company leases certain office and computer equipment under
non-cancelable long-term lease agreements which are reported as capital
leases. The terms of the leases range from three to five years, with
purchase options at the end of the respective lease terms. The Company
intends to exercise such purchase options, which will require minimal
payments. The borrowings are secured by the equipment purchased.
The Company leases its office space, which houses the Company's corporate,
sales and duplicating operations, under a non-cancelable operating lease
which expires on March 16, 1999. On October 6, 1998, the Company entered
into an agreement to extend this lease through March 15, 2009. The new
agreement does not include any option to renew. The Company also leases
warehouse space under a non-cancelable operating lease which expires
December 31, 1999.
Total rent expense for operating leases amounted to $558,741 for the nine
months ended September 30, 1998. Future minimum lease payments under all
non-cancelable capital and operating leases as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------------------
<S> <C> <C>
1998 (three months ending December 31, 1998) $ 16,516 $ 188,223
1999 7,579 707,805
2000 552,328
2001 549,348
2002 549,348
2003 549,348
Thereafter 2,835,000
----------- ------------
Total minimum payments 24,095 $5,931,400
----------- ------------
----------- ------------
Less imputed interest 549
-----------
Present value of payments under capital leases $ 23,546
-----------
-----------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 PAGE 10
- -------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
The Company is obligated on a payable to its sole shareholder of which
$49,401 was outstanding at September 30, 1998.
10. DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors a 401 (K) Plan for the benefit of all eligible
employees of the Company. Plan participants may contribute from 2% to 10%
of their salary. Company contributions are discretionary and are limited
to 7% of eligible wages. Total retirement expense under the 401 (K) Plan
amounted to $50,000 for the nine months ended September 30, 1998 of which
$50,000 is included in accrued expenses.
11. SUBSEQUENT EVENT
On November 9, 1998, the Company entered into an Asset Purchase Agreement
with VDI Media (VDI) whereby VDI acquired all of the assets of the Company
and assumed substantially all of the liabilities of the Company. As part
of this transaction, VDI Media paid the outstanding principal and interest
on the line of credit and note payable.
<PAGE>
Item 7(b) Pro Forma Financial Information
The following unaudited pro forma financial statements give effect to the
acquisition of DUBS Incorporated (Dubs). The unaudited pro forma combined
balance sheet presents the combined financial position of VDI Media and Dubs at
September 30, 1998 as if VDI Media had acquired Dubs on that date. Such pro
forma information is based upon the unaudited historical balance sheet data of
VDI Media and the audited balance sheet data of Dubs on September 30, 1998. The
unaudited pro forma combined statements of operations for the nine months ended
September 30, 1998 and for the year ended December 31, 1997, reflect adjustments
as if the transaction had occurred on January 1, 1997. The acquisition is being
accounted for as a purchase.
The unaudited pro forma combined financial statements reflect VDI Media's
allocation of the purchase price of approximately $6.9 million (plus the
assumption of trade payables and long-term debt) to the assets and remaining
liabilities assumed. The final allocation of 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 Dubs, 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, 1997, and the nine months ended September 30, 1998,
previously filed with the Securities and Exchange Commission (SEC). 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 VDI Media and Dubs as of September 30, 1998. Such
unaudited pro forma information is based on the combined historical balance
sheets of VDI Media and Dubs as of September 30, 1998, giving effect to the pro
forma adjustments described in the accompanying Notes to the Pro Forma Combined
Financial Statements.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------------------------------------------
DUBS COMBINED
VDI MEDIA INCORPORATED ADJUSTMENTS PRO FORMA
----------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,261,000 $ 101,000 $ - $ 2,362,000
Accounts receivable, net 14,871,000 2,603,000 17,474,000
Inventories 558,000 362,000 920,000
Deferred income taxes 508,000 508,000
Prepaid expenses and other current assets 429,000 237,000 666,000
---------------- --------------- ------------- -------------
Total current assets 18,627,000 3,303,000 - 21,930,000
Property and equipment, net 14,211,000 2,263,000 16,474,000
Other assets 339,000 339,000
Goodwill and other intangibles, net 18,480,000 140,000 6,824,000 (A) 25,444,000
---------------- --------------- ------------- -------------
$51,657,000 $ 5,706,000 $ 6,824,000 $64,187,000
---------------- --------------- ------------- -------------
---------------- --------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,629,000 $ 1,265,000 $ - $ 4,894,000
Accrued expenses 1,461,000 804,000 2,265,000
Borrowings under revolving credit agreement 17,964,000 1,180,000 (1,180,000) (B) 17,964,000
Current portion of notes payable 25,000 1,040,000 (1,040,000) (B) 25,000
Current portion of capitalized lease obligations 678,000 24,000 702,000
---------------- --------------- ------------- -------------
Total current liabilities 23,757,000 4,313,000 (2,220,000) 25,850,000
---------------- --------------- ------------- -------------
Deferred income taxes 103,000 - 103,000
Notes payable, less current portion - 1,867,000 8,570,000 (A),(B) 10,437,000
Capital lease obligations, less current portion 279,000 - 279,000
Shareholders' equity (deficit):
Preferred stock -
Common stock 20,608,000 - - 20,608,000
Additional paid-in capital - 750,000 (750,000) (A) -
Retained earnings (deficit) 6,910,000 (1,224,000) 1,224,000 (A) 6,910,000
---------------- --------------- ------------- -------------
Total shareholders' equity (deficit) 27,518,000 (474,000) 474,000 27,518,000
---------------- --------------- ------------- -------------
$51,657,000 $ 5,706,000 $ 6,824,000 $64,187,000
---------------- --------------- ------------- -------------
---------------- --------------- ------------- -------------
</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 VDI Media and Dubs for the year ended December
31, 1997 by combining the historical statements of operations for VDI Media and
Dubs for the period, giving effect to the pro forma adjustments described in the
accompanying Notes to the Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
DUBS COMBINED
VDI MEDIA INCORPORATED ADJUSTMENT PRO FORMA
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $40,772,000 $ 17,094,000 $ - $57,866,000
Cost of goods sold 24,898,000 13,535,000 - 38,433,000
----------- ------------ --------- -----------
Gross Profit 15,874,000 3,559,000 - 19,433,000
Selling, general, and administrative expense 9,253,000 4,198,000 296,000 (C) 13,747,000
----------- ------------ --------- -----------
Operating income (loss) 6,621,000 (639,000) (296,000) 5,686,000
Interest expense 294,000 497,000 280,000 (D) 1,071,000
Interest income 226,000 30,000 256,000
----------- ------------ --------- -----------
Income (loss) before income taxes 6,553,000 (1,106,000) (576,000) 4,871,000
Provision (benefit) for income taxes 2,572,000 3,000 (624,000) (E) 1,951,000
----------- ------------ --------- -----------
Net income (loss) $ 3,981,000 $ (1,109,000) $ 48,000 $ 2,920,000
----------- ------------ --------- -----------
----------- ------------ --------- -----------
Earnings per share:
Basic:
Net income per share $ 0.44 $ 0.32
Weighted average number of shares 9,122,575 9,122,575
Diluted:
Net income per share $ 0.43 $ 0.32
Weighted average number of shares including
the dilutive effect of stock options 9,207,940 9,207,940
</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 VDI Media and Dubs for the nine months ended
September 30, 1998 by combining the historical statements of operations for VDI
Media and Dubs for the period, giving effect to the pro forma adjustments
described in the accompanying Notes to the Pro Forma Combined Financial
Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------
DUBS COMBINED
VDI MEDIA INCORPORATED ADJUSTMENT PRO FORMA
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 16,419,000 $ 12,070,000 $ - $ 28,489,000
Cost of goods sold 9,886,000 8,957,000 - 18,843,000
-------------- --------------- ------------ ---------------
Gross Profit 6,533,000 3,113,000 - 9,646,000
Selling, general, and administrative expense 3,457,000 2,841,000 222,000 (C) 6,520,000
-------------- --------------- ------------ ---------------
Operating income 3,076,000 272,000 (222,000) 3,126,000
Interest expense 342,000 336,000 210,000 (D) 888,000
Interest income 3,000 - 3,000
-------------- --------------- ------------ ---------------
Income (loss) before income taxes 2,737,000 (64,000) (432,000) 2,241,000
Provision (benefit) for income taxes 1,122,000 1,000 (226,000) (E) 897,000
-------------- --------------- ------------ ---------------
Net income (loss) $ 1,615,000 $ (65,000) $(206,000) $ 1,344,000
-------------- --------------- ------------ ---------------
-------------- --------------- ------------ ---------------
Earnings per share:
Basic:
Net income per share $ 0.17 $ 0.14
Weighted average number of shares 9,769,904 9,769,904
Diluted:
Net income per share $ 0.16 $ 0.14
Weighted average number of shares including
the dilutive effect of stock options 9,817,243 9,817,243
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The following significant adjustments were made to the historical balance sheets
of VDI Media and Dubs at September 30, 1998 or historical statements of
operations of VDI Media and Dubs, as applicable, to arrive at the pro forma
combined balance sheets and pro forma combined statements of operations:
(A) Pro forma adjustments have been made to (i) record estimated
goodwill of $6,824,000 equal to the excess of the initial
consideration over the fair market value assigned to specific
assets and liabilities assumed, (ii) eliminate the shareholder
deficit of Dubs and (iii) reflect the use of borrowings under the
Company's term loan agreement to purchase Dubs.
(B) A pro forma adjustment has been made to reflect the repayment of
Dubs's long-term debt and line of credit at closing in accordance with
the purchase agreement.
(C) A pro forma adjustment has been made to selling, general and
administrative expense to reflect the amortization over 20 years of
the goodwill related to the acquisition of Dubs.
(D) A pro forma adjustment has been made to interest expense to reflect
the increase in debt related to the use of borrowings under VDI
Media's term loan agreement to finance the purchase net of the
decrease in interest expense due to the repayment of Dubs's long-term
debt and line of credit.
(E) A pro forma adjustment has been made to reflect the effective tax
rate of the combined company.
VDI Media estimates that it will save approximately $804,000 per year in
rent, utilities and other facilities costs by combining its Hollywood
facilities with the Dubs facility. VDI Media also estimates an annual
savings of approximately $1,418,000 related to the salaries of DUBS employees
terminated immediately prior to the acquisition. The related severance costs
were paid by the sole shareholder of DUBS. In accordance with SEC rules,
these estimated cost savings have not been reflected in the pro forma
combined statements of operations presented 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 by the
undersigned thereunto duly authorized.
VDI MEDIA
Date: February 1, 1999 /s/ Donald R. Stine
-------------------------------
Donald R. Stine
Chief Financial Officer and Treasurer
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-57549) of
VDI Media of our report dated January 6, 1999 relating to the financial
statements of DUBS, Incorporated, which appears in the Current Report on Form
8-K/A of VDI Media dated February 1, 1999.
PricewaterhouseCoopers LLP
Costa Mesa, California
February 1, 1999
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-46923) of VDI Media of our report dated January
6, 1999 relating to the financial statements of DUBS, Incorporated, which
appears in the Current Report on Form 8-K/A of VDI Media dated February 1, 1999.
PricewaterhouseCoopers LLP
Costa Mesa, California
February 1, 1999
