<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ___________.
Commission File Number 1-19577
-------
HARMONY HOLDINGS, INC.
--------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4333330
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1990 WESTWOOD BOULEVARD, SUITE 310
LOS ANGELES, CALIFORNIA 90025-4676
(Address of Principal Executive Offices)
(Zip Code)
(310) 446-7700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ______
-------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Class Outstanding at January 27, 1997
- ------------------------------- -------------------------------
COMMON STOCK, PAR VALUE 6,693,198 SHARES
$.01 PER SHARE
1
<PAGE>
ITEM 1.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Balance Sheets: 3
December 31, 1996 (unaudited) and June 30, 1996
Consolidated Statements of Operations (unaudited): 4
Six Months Ended December 31, 1996 and 1995
Consolidated Statements of Operations (unaudited): 5
Three Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows (unaudited): 6
Six Months Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements 7
</TABLE>
2
<PAGE>
HARMONY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------
1996 1996
--------------------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash $ 294,172 $ 446,740
Accounts receivable - net of allowance for doubtful accounts of $32,900 and 6,166,971 3,725,404
$75,629
Unbilled accounts receivable 1,209,277 376,811
Prepaid expenses and other current assets 944,563 437,153
--------------------------
Total current assets 8,614,983 4,986,108
Property and equipment, at cost, less accumulated depreciation and amortization 1,614,420 1,565,672
Goodwill, less accumulated amortization 2,863,555 2,969,446
Other assets 181,304 165,546
--------------------------
Total assets $13,274,262 $ 9,686,772
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 847,773 $ 1,242,517
Accrued liabilities 3,337,817 2,087,787
Bank line of credit 0 300,000
Deferred income 2,109,544 1,367,100
Subordinated notes payable 0 385,000
--------------------------
Total current liabilities 6,295,134 5,382,404
Stockholders' Equity:
Preferred Stock, $.01 par value, authorized 10,000,000 shares; none issued
Common Stock, $.01 par value, authorized 20,000,000 shares, issued and 66,933 56,933
outstanding 6,693,198 and 5,693,198
Additional paid-in capital 14,725,136 12,735,136
Accumulated deficit (7,812,941) (8,487,701)
--------------------------
Stockholders' equity 6,979,128 4,304,368
--------------------------
Total Liabilities and Stockholders' Equity $13,274,262 $ 9,686,772
==========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
HARMONY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Contract revenues $29,537,842 $31,794,435
Cost of production 23,593,378 27,148,257
--------------------------
Gross profit 5,944,464 4,646,178
Selling expenses 1,545,250 1,458,478
Operating expenses 3,339,551 3,480,624
Depreciation and amortization 292,165 282,399
Abandoned projects 0 621,528
Litigation expense 0 200,000
Severance salaries 0 186,488
--------------------------
Income (loss) from operations 767,498 (1,583,339)
Interest income 38,386 4,636
Interest expense (27,660) (113,439)
--------------------------
Net income (loss) before income taxes $ 778,224 $(1,692,142)
Income taxes 103,492 0
==========================
Net income (loss) 674,732 (1,692,142)
==========================
Net income (loss) per share $0.10 $(0.30)
Weighted average shares outstanding 6,437,763 5,660,941
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
HARMONY HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Contract revenues $15,721,323 $17,025,470
Cost of production 12,447,460 14,534,715
--------------------------
Gross profit 3,273,863 2,490,755
Selling expenses 886,554 852,288
Operating expenses 1,858,659 1,818,971
Depreciation and amortization 148,194 146,532
Abandoned projects 0 621,528
Litigation expense 0 200,000
Severance salaries 0 186,488
--------------------------
Income (loss) from operations 380,456 (1,335,052)
Interest income 36,008 829
Interest expense (6,584) (70,405)
--------------------------
Net income (loss) before income taxes $ 409,880 $(1,404,628)
Income taxes 103,492 0
==========================
Net income (loss) 306,388 (1,404,628)
==========================
Net income (loss) per share $0.05 $(0.25)
Weighted average shares outstanding 6,693,198 5,660,941
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
HARMONY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 674,732 $(1,692,146)
Adjustments to reconcile net loss to cash used by operating
activities:
Depreciation and amortization 290,731 242,425
Amortization of prepaid interest 3,823 45,879
Changes in assets and liabilities:
Accounts receivable (2,441,567) (2,573,023)
Unbilled accounts receivable (832,466) (449,919)
Prepaid expenses and other current assets (511,233) (131,413)
Other assets (15,730) 167,412
Accounts payable (394,744) 4,770
Accrued liabilities 1,250,030 (121,561)
Deferred income 742,444 2,321,429
--------------------------
Net cash used by operating activities (1,233,980) (2,186,147)
--------------------------
Cash flows from investing activities:
Capital expenditures (233,588) (194,352)
--------------------------
Net cash used by investing activities (233,588) (194,352)
--------------------------
Cash flows from financing activities:
Proceeds from issuance of stock 2,000,000 61,559
Repayments Subordinated notes payable (385,000) 0
Bank line of credit (300,000) 2,200,000
--------------------------
Net cash provided by financing activities 1,315,000 2,261,559
--------------------------
Net decrease in cash (152,568) (118,940)
Cash, beginning of period 446,740 229,909
--------------------------
Cash, end of period $ 294,172 $ 110,969
==========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
HARMONY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1996
(1) Basis of presentation
---------------------
The financial information included herein is unaudited, however, such
information reflects all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to present fairly the results
of operations for the periods presented. The results of operations for the six
months ended December 31, 1996 are not necessarily indicative of a full year.
The information contained in this Quarterly Report on Form 10-Q should be
read in conjunction with the audited financial statements as of June 30, 1996
filed as part of the Company's Annual Report on Form 10-K.
(2) Income (Loss) Per Share
-----------------------
Per share computations are based on the weighted average number of common
and common equivalent shares outstanding. Per share computations also include
the potential dilution resulting from the assumed exercise of stock options and
warrants utilizing the treasury stock method when the effect of such common
equivalent shares is dilutive. For the six months ended December 31, 1996,
fully diluted net income per share was the same as primary net income per share.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Six months ended December 31, 1996 as compared with Six months ended December
- -----------------------------------------------------------------------------
31, 1995
- --------
For the six months ended December 31, 1996, revenues decreased by
approximately 7%, or $2,256,593, to $29,537,842 from $31,794,435 for the six
months ended December 31, 1995. The subsidiaries that ceased operations during
1996 accounted for $2,516,233 or 8% of the Company's revenue for the six months
ended December 31, 1995. Revenues excluding those from ceased operations were
essentially the same in each of those periods.
Cost of production is directly related to revenues and includes all direct
costs incurred in connection with the production of television commercials
including film, crews, location fees and commercial directors' fees. Cost of
production for the six months ended December 31, 1996, decreased by
approximately 13%, or $3,554,879 to $23,593,378 from $27,148,257 for the six
months ended December 31, 1995. Expressed as a percentage of revenues, cost of
production for the six months ended December 31, 1996, was approximately 80%
compared with 85% for the six months ended December 31, 1995 and resulted in
gross profit percentages of approximately 20% and 15%, respectively. The
decrease in cost of production and the increase in gross profit for the six
months ended December 31, 1996, were primarily due to management's continuing
efforts to reduce costs and maximize purchasing power, offset by the increased
competitive factors within the commercial production industry. Cost of
production for operations ceased during the year of $2,344,508 expressed as a
percentage of revenue was 93% and resulted in a gross profit of 7%.
Selling expenses consist of sales commissions, advertising and promotional
expenses, travel and other expenses incurred in the securing of commercial
contracts. Selling expenses for the six months ended December 31, 1996,
increased to $1,545,250 from $1,458,478 for the six months ended December 31,
1995, representing an increase of $86,772. Selling commissions increased by
$30,087, while other selling expenses increased by $56,685. $37,384 of the
increase in other selling expenses was attributable to an increase in costs
incurred for commercials produced to enhance existing directors show reels and
not as a result of a contract with an advertising agency. Selling expenses for
the operations ceased during the six months ended December 31, 1995, was $86,988
or 6% of the total selling expenses.
Operating expenses consist of overhead costs such as office rent and
expenses, executive, general and administrative payroll, and related items.
Operating expenses for the six months ended December 31, 1996, decreased to
$3,339,551 from $3,480,624 for the six months ended December 31, 1995,
representing a decrease of $141,073 or 4%. The following account for the primary
changes in operating expenses: decrease in salaries $146,000 and a decrease in
bad debt expense of $115,000, offset by an increase in legal fees of $113,000.
Operating expenses of $340,808 relates to subsidiaries that have ceased
operations.
Litigation expenses for the six months ended December 31, 1995, relate to
the termination of and settlement with a former chief operating officer of the
Company, Tara McCarthy.
The Company for the six months ended December 31, 1995, had booked a one-
time charge to write off the cost of projects that no longer are considered to
have a realizable value. The charge includes $215,000 cost of production of an
infomercial, $224,000 for a screenplay writing project, $100,000 for a director
and salesperson who attempted to begin a new subsidiary and approximately,
$82,000 for placement of corporate products and a books-on-tape distribution
system.
8
<PAGE>
Severance salaries for the six months ended December 31, 1995, are the
costs associated with the termination of former employees of the Company.
Depreciation and amortization expense increased for the six months ended
December 31, 1996, to $292,165 from $282,399 for the six months ended December
31, 1995, representing a increase of $9,766. The change is due to the increase
in depreciable assets of $233,588.
Interest income increased for the six months ended December 31, 1996, to
$38,386 from $4,636 for the six months ended December 31, 1995, representing an
increase of $33,750, due to more cash held in short term investments compared to
the prior year.
Interest expense decreased for the six months ended December 31, 1996, to
$27,660 from $113,439 for the six months ended December 31, 1995, representing
a decrease of $85,779, due to a decrease in borrowings under the line of credit
and a payoff of the subordinated debt.
Income tax expense was $103,492 for the six months ended December 31,
1996. The tax expense is attributable to federal alternative minimum taxes and
state taxes imposed by various states in which the companies conduct business. A
full valuation allowance has been established as it is more likely than not that
the deferred tax assets will be not realized. During the six months ended
December 31, 1996, the Company's effective income tax rate varied from the
statutory federal tax rate as a result of operating losses for which no tax
benefit has been recognized due to the change in the valuation allowance on the
net deferred tax asset.
Three months ended December 31, 1996 as compared with three months ended
- ------------------------------------------------------------------------
December 31, 1995
- -----------------
For the three months ended December 31, 1996, revenues decreased by
approximately 8%, or $1,304,147, to $15,721,323 from $17,025,470 for the three
months ended December 31, 1995. The subsidiaries that ceased operations during
1996 accounted for $1,221,986 or 7% of the Company's revenue for the three
months ended December 31, 1995.
Cost of production for the three months ended December 31, 1996, decreased
by approximately 14%, or $2,087,255 to $12,447,460 from $14,534,715 for the
three months ended December 31, 1995. Expressed as a percentage of revenues,
cost of production for the three months ended December 31, 1996, was
approximately 79% compared with 85% for the three months ended December 31,
1995 and resulted in gross profit percentages of approximately 21% and 15%,
respectively. The decrease in cost of production and increase in gross profit
for the three months ended December 31, 1996, were primarily due to management's
continuing efforts to reduce costs and maximize purchasing power, offset by the
increased competitive factors within the commercial production industry. Cost of
production for operations ceased during the year was $1,101,238 expressed as a
percentage of revenue was 90% and resulted in a gross profit of 10%.
Selling expenses for the three months ended December 31, 1996, increased
to $886,554 from $852,288 for the three months ended December 31, 1995,
representing an increase of $34,266. Selling commissions increased by $5,342,
while other selling expenses increased by $28,924. $19,845 of the increase in
other selling expenses was attributable to an increase in costs incurred for
commercials produced to enhance existing directors show reels and not as a
result of a contract with an advertising agency. Selling expenses for the
operations ceased during the three months ended December 31, 1995, was $57,391
or 7% of the total selling expenses.
Operating expenses for the three months ended December 31, 1996, increased
to $1,858,659 from $1,818,971 for the three months ended December 31, 1995,
representing an increase of $39,688 or 2%. The following account for the primary
changes in operating expenses: decrease in salaries $36,000, offset by an
increase in legal fees of $51,000 and an increase in rent
9
<PAGE>
expense of $21,000. Operating expenses of $245,352 relates to subsidiaries that
have ceased operations.
Litigation expenses for the three months ended December 31, 1995, relate
to the termination of and settlement with a former chief operating officer of
the Company, Tara McCarthy.
The Company for the three months ended December 31, 1995, had booked a
one-time charge to write off the cost of projects that no longer are considered
to have a realizable value. The charge includes $215,000 cost of production of
an infomercial, $224,000 for a screenplay writing project, $100,000 for a
director and salesperson who attempted to begin a new subsidiary and
approximately, $82,000 for placement of corporate products and a books-on-tape
distribution system.
Severance salaries for the three months ended December 31, 1995, are the
costs associated with the termination of former employees of the Company.
Depreciation expense increased for the three months ended December 31,
1996, to $148,194 from $146,532 for the three months ended December 31, 1995,
representing a increase of $1,662.
Interest income increased for the three months ended December 31, 1996, to
$36,008 from $829 for the three months ended December 31, 1995, representing a
increase of $35,179, due to more cash held in short term investments compared to
the prior year.
Interest expense decreased for the three months ended December 31, 1996,
to $6,584 from $70,405 for the three months ended December 31, 1995,
representing a decrease of $63,821, due to a decrease in borrowings under the
line of credit and a payoff of the subordinated debt.
Income tax expense was $103,492 for the three months ended December 31,
1996. The tax expense is attributable to federal alternative minimum taxes and
state taxes imposed by various states in which the companies conduct business. A
full valuation allowance has been established as it is more likely than not that
the deferred tax assets will be not realized. During the three months ended
December 31, 1996, the Company's effective income tax rate varied from the
statutory federal tax rate as a result of operating losses for which no tax
benefit has been recognized due to the change in the valuation allowance on the
net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Six months ended December 31, 1996 as compared with six months ended December
- -----------------------------------------------------------------------------
31, 1995
- --------
At December 31, 1996, the Company's working capital was $2,319,849
including cash of $294,172 compared to working capital of $143,736, including a
cash of $110,969 at December 31, 1995. Cash used by operating activities for the
six months ended December 31, 1996, decreased $952,167 to $1,233,980 from cash
used in operating activities of $2,186,147 for the six months ended December 31,
1995. The material decreases in the amount of cash used in operating activities
were $2,366,878 increase in net income; $251,091 increase in billed and unbilled
accounts receivable; $972,077 increase in accounts payable and accrued expenses,
$562,962 increase in prepaid expenses and other assets and a decrease in
deferred income of $1,578,985.
Cash used in investing activities (ie: capital expenditures) for the six
months ended December 31, 1996, increased 20% or $39,236 to $233,588 from
$194,352 for the six months ended December 31, 1995.
10
<PAGE>
Cash provided by financing activities for the six months ended December
31, 1996, decreased $946,559 to $1,315,000 from $2,261,559 for the six months
ended December 31, 1995. Due to a $385,000 decrease in subordinated debt and a
$2,500,000 decrease in net borrowings on the line of credit agreement, offset by
$1,938,441 increase in the proceeds from the issuance of stock.
On May 10, 1995, the Company entered into a $3,000,000 asset based
revolving line of credit with a bank, with interest at the bank's prime rate
plus 1.0% per annum, collateralized by the assets of the Company. The bank's
prime rate at December 31, 1996 was 8.25%. The agreement has been renewed and
expires October 31, 1997. Borrowing is based upon certain percentages of
acceptable receivables. There were no amounts outstanding on the line of credit
as of December 31, 1996 and the Company was in compliance with all of the
financial covenants with the bank.
The Company, as of December 31, 1996 had entered into various employment
agreements with its officers and others which obligate it to make minimum
payments of approximately $6,233,893 over the next three years. The payments due
are $2,974,577, $2,092,317 and $1,167,000 for the twelve months ended December
31, 1997, 1998 and 1999, respectively. Of these amounts $3,872,050 are for
administrative personnel and $2,361,843 are for commercial television directors
and salespeople. Certain of these agreements provide for additional compensation
based on revenues and other items. Other agreements provide for additional
compensation based on certain defined operating profits. This additional
compensation is payable whether or not the Company has a profit. Some of the
television directors who are associated with the Company receive monthly draws
against the directors' compensation for production of commercials. The monthly
draws equal the minimum guaranteed compensation payable to such directors.
Although the draws are recoupable by the Company out of compensation otherwise
payable to such directors, such directors are not obligated to repay such draws,
if their fees for commercials produced do not exceed the monthly draws which
have been paid. Consequently, the Company is obligated to provide compensation
to these directors whether or not they are directing commercials. Most of the
Company's sales personnel receive monthly draws offset by their earned
commissions. During the six months ended December 31, 1996, the Company paid
$992,723 in such draws to these directors and sales people; they earned
$1,860,493 in fees, which sum exceeded the draws advanced by $1,126,207. On an
individual basis some of the director's and sales personnel's fees earned were
less then their draws and increased the Company's losses by $58,437.
The Company has no material commitments for capital expenditures and has
not made any arrangements for external sources of financing other than what has
been disclosed. Management believes that the Company's present cash and other
resources are sufficient for its needs for at least the next twelve months.
Inflation
- ---------
Inflation has not had a significant effect on the Company.
11
<PAGE>
ITEM 5. OTHER INFORMATION
-----------------
RECENT LITIGATION RELATED TO PROPOSED ACQUISITION
On July 27,1996, the Company, its Chairman of the Board and Unimedia S.A.,
a French Corporation, executed an agreement which provided, among other things,
that (i) the parties would negotiate before September 30, 1996, a definitive
agreement providing for the acquisition from Unimedia shareholders of all the
issued and outstanding ordinary shares of Unimedia in exchange for 10,000,000
shares of Preferred Stock, and 10,000,000 shares of Common Stock, of the
Company, and (ii) the Chairman of the Board of the Company refrain from selling
80% of his shares of stock of the Company prior to the completion of the
"purchase of Unimedia" by the Company, and, in any case, prior September 30,
1996. The agreement also contemplated the purchase by Unimedia in the open
market of a maximum of 1,000,000 shares of Common Stock of the Company. The
shareholders of Unimedia were not parties to this agreement.
Since the definitive agreement had not been negotiated, much less
executed, before September 30, 1996, the Company considered the transaction
terminated and so notified Unimedia and the public.
On October 9, 1996, Unimedia filed an action (served on October 13, 1996)
in the United States District Court for the Central District of California
against the Company and its Chairman of the Board, seeking, among other things,
rescission of the purchase from the Company of 1,000,000 shares of its Common
Stock, specific performance requiring the Company to proceed with the
transaction, damages for violation of Rule 10b-5 adopted by the Security and
Exchange Commission under the Securities Exchange Act of 1934, fraud and breach
of contract, and declaratory and injunction relief. In view of the early stage
of this action, management of the Company is not in a position to express an
opinion with respect to the action, but believes it to be without merit and will
vigorously defend the action.
LITIGATION RELATED TO A MUSIC VIDEO PRODUCTION AT A SUBSIDIARY
A lawsuit was filed on March 22, 1996, (served August 12, 1996) in
Superior Court of the State of California, County of Los Angeles. A wrongful
death claim has been made by the estate of Henry Gillermo Urgoiti, his wife and
three children for an accident that occurred during the filming of a music video
in August, 1995. The complaint contains six causes of action, three causes for
negligence, one cause for negligent product liability, one cause for strict
liability and one cause for breach of warranty. Harmony Holdings, Inc., has been
named in all six causes of action, Harmony Pictures Inc., The End Inc. and three
of it's employees have been named in one of the negligence claims. Other
defendants include Southern California Edison, Virgin Records America, Inc. Bell
Helicopters and Helinet Aviation Services. While it is to early in the discovery
process to assess economic risk or insurance coverage. Management has been
advised by the Company's insurance broker that there is adequate insurance to
cover any damages assessed against the Company.
A cross-complaint related to the preceding matter, was filed on December
23, 1996 in Superior Court of the State of California, County of Los Angeles.
The complaint has been filed by Virgin Records Limited against The End, Inc and
Southern California Edison for contractual indemnity, equitable indemnity,
comparative contribution and declaratory relief. While it is to early in the
discovery process to assess economic risk or insurance coverage. Management has
been advised by the Company's insurance broker that there is adequate insurance
to cover any damages assessed against the Company.
EMPLOYMENT AGREEMENTS
On January 1, 1997, Brian Rackohn, Chief Financial Officer, of the
Company, entered into a two-year employment contract with the Company, which
contract expires on December 31, 1998.
12
<PAGE>
Under the contract, Mr. Rackohn is entitled to a salary of $132,000 in year one,
$141,000 in year two and was granted five-year options to purchase 75,000 shares
of the Company's Common Stock at an exercise price of $1.50 per share. In
addition 50,000 existing five-year options previously granted to Mr, Rackohn, to
purchase shares of the Company's Common Stock were canceled.
On October 1, 1996, Harvey Bibicoff, Chairman of the Board, of the
Company, entered into a second amendment of a four-year employment contract with
the Company, which contract expires on August 19, 2000, unless extended in
accordance with the contract. Mr. Bibicoff is entitled to a salary of $265,000
per year and was granted five-year options to purchase 350,000 shares of the
Company's Common Stock at an exercise price of $1.50 per share.
RELATED PARTY TRANSACTIONS
On October 1, 1996, Bibicoff & Associates, Inc.,an affiliate of Mr.
Bibicoff, was hired for $75,000, to supervise the Company's investor relations
department through September 30, 2000.
13
<PAGE>
PART II-- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
---------
10.28 Employment agreement dated January 1, 1997, between Harmony
Holdings and Mr. Rackohn.
10.29 Employment agreement dated October 1, 1996, between Harmony
Holdings and Mr Bibicoff.
10.30 Consulting agreement dated October 1, 1996, between Harmony
Holdings and Bibicoff and Associates.
(b) Reports on Form 8-K - None
-------------------
No other Items of Part II of the Quarterly Report on Form 10-Q are applicable to
the period covered by this Quarterly Report on Form 10-Q.
14
<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.
HARMONY HOLDINGS, INC.
Date: February 4, 1997
By/s/Harvey Bibicoff
-------------------------------
Harvey Bibicoff
Chairman of the Board, Chief Executive Officer
Date: February 4, 1997
By/s/Brian Rackohn
----------------------------
Brian Rackohn
Chief Financial Officer, Secretary
(Principal Financial and Chief Accounting Officer)
15
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated this 1st day of January, 1997, between
Harmony Holdings, Inc. ("Harmony") and Brian Rackohn ("Employee").
Harmony accepts Employee as Chief Financial Officer ("CFO") and Employee agrees
to be employed by Harmony in that position, under the following terms and
conditions:
1. TERM OF EMPLOYMENT. The term of this Agreement will be for two
------------------
years from January 1, 1997 and expire on December 31, 1998 ("Initial Term").
After this Initial Term, the employment relationship may be terminated at any
time by either Employee or Harmony upon ninety (90) days written notice to the
other, for any or no reason, with or without cause. During the Initial Term,
the Agreement may be terminated for cause as defined in Paragraph 8. The
parties may continue to operate under the terms of this Agreement after the
Initial Term until a new Agreement is reached between the parties. At any time
after the Initial Term, Harmony may avoid the ninety (90) days notice by paying
to Employee a sum equivalent to ninety (90) days of salary as severance pay in
lieu of notice.
2. COMPENSATION. For the services to be rendered by Employee during
------------
her employment by Harmony, Employee will receive annual salary at the rate of
$132,000 in the first year and annual salary of $141,000 in the second year,
payable according to the normal payroll practices of Harmony.
3. STOCK OPTIONS Harmony Holdings shall cancel all warrants issued
-------------
and outstanding to Employee and grant five-year options to purchase an aggregate
of 75,000 shares of Common Stock of Harmony Holdings at an exercise price of
$1.50 per share. 50,000 options shall vest immediately; 12,500 options shall
vest on December 31, 1997 and 12,500 options shall vest on December 31, 1998.
4. EMPLOYEE BENEFITS. Employee is eligible to receive all benefits
-----------------
normally provided by Harmony to other employees, as set forth in Harmony's
employee handbook, except that Employee will receive four (4) weeks of vacation
per year. These benefits may be changed at any time by Harmony upon written
notice to Employee (except the vacation time).
5. EXPENSES. Harmony will pay a monthly allowance of $500 per month
--------
for Employee's automobile, payable at the beginning of the month for that month.
Harmony will reimburse Employee for those reasonable expenses upon submission to
Harmony of appropriate vouchers prepared in accordance with applicable
regulations of the Internal Revenue Service, in addition to all expenses related
to the maintenance of Employee's CPA license.
6. DUTIES. Employee will be employed as a CFO of Harmony. Employee
------
will render services that are consistent with the title, position and
responsibilities of a CFO of a publicly traded business the size and conducting
operations comparable to Harmony, which include but are not limited to
supervising all of the accounting staff, overseeing the operations, preparation
of the financials, reporting and interacting with outside professionals
(accountants and attorneys), reporting and interacting with the Presidents of
the subsidiaries, reviewing cash management status, making decisions on short
term investing and or line of credit borrowing in line with approved strategy,
supervising the insurance administration and pricing, and acting as signatory on
checks. Employee will make every effort to and will conduct himself at all
times so as to advance the best interests of Harmony and will devote full time
and efforts exclusively to the business affairs of Harmony.
7. COMPLIANCE WITH HARMONY POLICY. Employee agrees to, at all times,
------------------------------
observe, respect and comply with all personnel policies and procedures of
Harmony then existing (both oral or written) pertaining to the performance of
Employee's duties.
8. CONTRACTUAL LIMITATIONS. Employee warrants that Employee is under
-----------------------
no contractual limits restraining or impairing Employee's ability to contract
with or perform services for Harmony, including but not limited to any
agreements restricting the use of information or limiting or prohibiting
competition or the solicitation of customers.
<PAGE>
9. TERMINATION. Harmony may immediately terminate Employee's
-----------
employment hereunder at any time for cause, which shall mean (i) fraud or
embezzlement or indictment of Employee of any felony or crime involving moral
turpitude or larceny; (ii) the commission by Employee of an act of dishonesty
constituting a crime; (iii) intentional dereliction in the performance of
Employee's duties or responsibilities; (iv) the failure to carry out the
reasonable directives of the Board of Directors of Company relating to the
conduct of Company's business; (v) willful breach of any material duty by
Employee within the course of Employee's employment hereunder; or (vii)
knowingly imparting confidential information relating to the business of Company
or its personnel, as specified in Paragraph 9.
10. NON-DISCLOSURE. Harmony may provide and make available to
--------------
Employee certain information regarding its business, including without
limitation: pending projects or proposals; business plans and projections,
including new facility or expansion plans; employee and contractor salaries,
contracts and wage information; financial information about Harmony; subsidiary
information reports; ("Information"). This Information is of substantial value
and highly confidential, is not known to the general public, is the subject of
reasonable efforts to maintain its secrecy, constitutes the professional and
trade secrets of Harmony, and is being provided and disclosed to Employee solely
for use in connection with his employment by Harmony.
In consideration of such employment and receipt of the Information,
Employee agrees that he:
(1) Will regard and preserve the Information as highly confidential
and the trade secrets of Harmony;
(2) Will not disclose, nor permit to be disclosed, any of the
Information to any person or entity, absent consent and approval
from Harmony;
(3) Will not photocopy or duplicate, and will not permit any person
to photocopy or duplicate, any of the Information without
Harmony's consent and approval;
(4) Will not make any use of Information for his own benefit or the
benefit of any person or entity other than Harmony;
(5) Will return all Information, including but not limited to books
maintained by Employee, to Harmony within twenty-four (24) hours
after request for same.
11. NOTICE. For the purposes of this Agreement, notices are to be
------
either personally delivered, faxed, or mailed by United States first class mail,
addressed to:
Harmony: Harmony Holdings, Inc.
Harvey Bibicoff ,COB
1990 Westwood Blvd., #310
Westwood, California 90025-4676
(310) 446-7700
Employee: Brian Rackohn
17321 Gilmore Street
Van Nuys, California 90025
(818) 996-2705
12. MISCELLANEOUS. No provision of this Agreement may be amended,
-------------
modified, waived or discharged unless such amendment, modification, waiver or
discharge is agreed to in writing signed by Employee and on behalf of Harmony by
an officer. No waiver by either party at any time of any breach by the other
party of or compliance with any condition or provision of this Agreement to be
performed by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, have been
made by either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction and performance of this Agreement will be
governed by the laws of the State of California applicable to agreements made
and to be performed in such State. This Agreement supersedes and cancels
<PAGE>
any prior agreement, if any, entered into between Employee and Harmony relating
to Employee's employment with Harmony.
13. VALIDITY. The invalidity of any provision or provisions of this
--------
Agreement will not affect any other provisions of this Agreement, which will
remain in full force and effect, nor will the invalidity of a portion of any
provision of this Agreement affect the balance of such provision.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
Employee and by the duly authorized officer of Harmony on the date first above
written.
Harmony Holdings, Inc.
By/s/Harvey Bibicoff
--------------------
Harvey Bibicoff, COB
"Employee"
By/s/Brian Rackohn
------------------
Brian Rackohn
<PAGE>
EXHIBIT 10.29
October 1, 1996
Mr. Brian Rackohn
Chief Financial Officer
Harmony Holdings, Inc.
1990 Westwood Blvd., #310
Los Angeles, CA 90025-4676
Dear Mr. Rackohn:
This will confirm our understanding and agreement that Bibicoff & Associates,
Inc. will supervise an Investor Relations program to be instituted by Harmony
Holdings, Inc.
The term of this Agreement will commence effective today and will extend through
September 30, 2000.
As full and complete compensation for these services, Harmony will pay one lump
sum payment of $75,000 to Bibicoff & Associates upon the execution of this
Agreement. No additional fees or expenses will be paid to or reimbursed to
Bibicoff & Associates in conjunction with this Agreement. If this is acceptable
to you, please sign in the space provided below.
Very truly yours,
By/s/Harvey Bibicoff
Harvey Bibicoff
President
AGREED TO AND ACCEPTED:
Harmony Holdings, Inc.
By: By/s/Brian Rackohn
Brian Rackohn, Chief Financial Officer
<PAGE>
EXHIBIT 10.30
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
------------------------------------------------
This Second Amended and Restated Employment Agreement is dated as of
this first day of October, 1996 by and among HARMONY HOLDINGS, INC., a Delaware
corporation ("Company") and Harvey Bibicoff ("Employee") with reference to the
following facts:
A. Bibicoff & Associates, Inc., and Company previously entered into an
Agreement dated as of July 1, 1991 to provide the services of Employee to
Company.
B. On May 2, 1994, Company, Employee and Bibicoff & Associates entered
into an Amended and Restated Employment Agreement which effectively terminated
the obligations of Bibicoff & Associates thereunder and amended certain other
terms and provisions thereof.
C. Employee and Company now wish to further amend and restate the
previously Amended and Restated Employment Agreement.
WHEREAS, Company desires to employ Employee as its Chief Executive
Officer and Employee desires to be so employed by Company pursuant to the terms
and conditions hereinafter set forth:
NOW, THEREFORE, the parties hereto agree as follows:
1. ENGAGEMENT. Company engages Employee as Chief Executive Officer
----------
pursuant to the terms and conditions hereof, and Employee hereby accepts such
engagement. Employee shall report only to Company's Board of Directors. Company
shall use its best efforts to cause Employee to be elected and re-elected to its
Board of Directors so long as this Agreement remains in force and effect.
2. NATURE OF SERVICES. Employee will render services to Company
------------------
that are consistent with the title, position and responsibilities of a Chief
Executive Officer of a business of the size and conducting operations comparable
to Company.
Employee shall make every effort to and shall conduct himself at all
times so as to advance the best interests of Company.
Employee agrees that at all times he shall observe, respect and comply
with all personnel policies and procedures of Company then existing (both oral
and written) pertaining to the performance of Employee's duties.
Employee shall be based in Los Angeles and shall not be required to
travel for business outside of the United States in excess of four (4) times per
calendar year, nor outside of California in excess of an additional six (6)
times per calendar year.
3. COMPENSATION. As consideration for the services to be rendered
------------
by Employee pursuant hereto, and upon condition that Employee is substantially
performing all of the services required hereunder and that Employee is not in
material default, Company will pay or will cause to be paid to Employee, during
the Term of this Agreement, subject to all applicable laws and requirements
respecting withholding of federal, state, and/or local taxes:
4.1 Fixed and Bonus Compensation. Fixed annual compensation of
----------------------------
$265,000 for each Term Year payable in equal semi-monthly installments.
In addition, Employee shall be entitled to an annual bonus payable
within 45 days after the close of each fiscal year of Company in an amount equal
to 3% of Company's pre-tax net income in excess of $265,000.
<PAGE>
4.2 Automobile Allowance. An automobile allowance of $800 for each
--------------------
month during the Term.
5. STOCK OPTIONS. Concurrently herewith Company shall issue to
-------------
Employee a five-year stock option to purchase an aggregate of 350,000 shares of
Common Stock of Company at an exercise price of One Dollar and Fifty Cents
($1.50) per share. This stock option shall be in the form of a Stock Option
Agreement, attached to this Agreement as exhibit "A".
Nothing contained in this Agreement is intended to affect any stock
options provided for in any other agreement between Employee and Company.
6. NOTICES. Notices to Employee shall be delivered to the
-------
following address:
4101 Clarinda Drive
Tarzana, Ca 91356
Notices to Company shall be delivered to the following address:
1990 Westwood Blvd., #310
Los Angeles, CA 90025-4676
All notices must be personally delivered or mailed by United States
certified or registered mail, return receipt requested, with postage prepaid.
7. STANDARD TERMS AND CONDITIONS. This Agreement is subject to
-----------------------------
Company's Additional Terms and Conditions, a copy of which is attached hereto as
Exhibit "B", and such terms shall be incorporated herein and be binding upon the
parties hereto; provided, that in the event of an inconsistency between the
terms of this Agreement and any of the Additional Terms and Conditions, the
terms of this Agreement shall control.
IN WITNESS WHEREOF, Company and Employee have executed this Agreement
on the date first written above.
HARMONY HOLDINGS, INC.
a Delaware corporation,
By: By/s/Brian Rackohn
BRIAN RACKOHN, CFO
By/s/Harvey Bibicoff
HARVEY BIBICOFF
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
-------------------------------
OF EMPLOYMENT
-------------
1. NON-EXCLUSIVITY. Employee is free to provide his services to
---------------
others provided such services do not materially interfere with the obligations
of Employee hereunder. Employee shall devote whatever time is necessary to
discharge the duties of Employee hereunder.
2. BENEFITS.
--------
(a) Reimbursements. Company shall reimburse Employee for all ordinary
--------------
and necessary business, entertainment and other expenses reasonably incurred by
Employee in the performance of Employee's duties and obligations under this
Agreement, including, but not limited to, reimbursement for air travel and
accommodations for business travel to the extent normally provided to senior
executives in the entertainment industry. Company agrees to repay or reimburse
Employee for such business expenses upon the presentation of itemized statements
of such business expenses on Company's regular form used for such purposes.
(b) Health Insurance and Other Employee Benefits. Employee shall be
--------------------------------------------
eligible to receive all benefits normally provided by Company to other senior
executives employed by Company, including, but not limited to, medical, health,
and disability insurance, as well as pension and profit sharing.
Company shall provide Employee with a $1,000,000 term life insurance
policy wherein Company is the owner of the policy, but Employee may designate
the beneficiary in his sole and absolute discretion.
3. RELATIONSHIP AND COVENANTS OF EMPLOYEE.
--------------------------------------
(a) Non-Disclosure. Company has made, and will continue to make,
--------------
available to Employee certain non-public information concerning or used by
Company and/or its subsidiaries, whether in written, unwritten or electronic
form, excluding any such information which becomes public for reasons other than
Employee's breach of this Agreement or which Employee is required by law to
disclose ("Information"), which obtains substantial value by not being known to
the general public and which is the subject of Company's efforts to maintain its
secrecy, and which constitutes the professional and trade secrets of Company.
The Information is being provided and disclosed to Employee solely for use in
connection with Employee's employment by Company. In consideration of such
employment and receipt of the Information, Employee agrees that at all times,
whether during or after the termination of this Agreement, he:
(1) Shall regard and preserve the Information as highly
confidential and the trade secrets of Company;
(2) Shall not reveal, divulge or disclose, and shall not
permit to be revealed, divulged or disclosed, any of
the Information to any person or entity absent express
written consent and approval from Company;
<PAGE>
(3) Shall not photocopy or duplicate, and shall not permit
any person to photocopy or duplicate, any of the
Information absent written consent and approval from
Company;
(4) Shall not make any use of the Information for
Employee's own benefit or the benefit of any person or
entity other than Company;
(b) Delivery of Records. All memoranda, notes, records and other
-------------------
documents made or compiled by Employee, or made available to Employee during the
term of this Agreement concerning the business of Company shall be Company's
property. Employee agrees to return any and all such materials to Company,
including any and all copies thereof, immediately upon request for same.
(c) Diversion. During the term of this Agreement and for 2 years
---------
after its termination, Employee shall not, directly or indirectly, either on
Employee's own behalf, or as a member of a partnership, joint venture,
corporation, or any other entity, or as an employee or agent on behalf of any
person, firm, partnership, joint venture, corporation, or any other entity,
solicit, divert, or seek to develop or exploit any existing entertainment
projects on which Company is working (unless Company has previously advised
Employee in writing that it has abandoned such project)
(d) Non-Solicitation. During the term of this Agreement and for 2
----------------
years after its termination, Employee shall not, directly or indirectly, employ,
solicit for employment, retain as an independent contractor, solicit for
retention as an independent contractor, or advise or recommend to any other
person or entity that they employ, retain as an independent contractor, or
solicit for employment or retention as an independent contractor, any person
employed by Company or with whom Company had an independent contractor
relationship during the term of this Agreement.
(e) Limitations Upon Covenants. The provisions under this Paragraph 3
--------------------------
shall survive the termination of this Agreement. The parties hereto agree that,
in the event any of the provisions set forth in this Paragraph 3 are held by any
court or other duly constituted legal authority to be effective in any
particular area or jurisdiction only if modified to limit their duration or
scope or to be void or otherwise unenforceable in any particular area or
jurisdiction, then such provisions shall be deemed amended and modified with
respect to that particular area or jurisdiction so as to comply with the order
of any such court or other duly
<PAGE>
constituted legal authority and, as to all other areas and jurisdictions, and as
to all other provisions of this Paragraph 3, such provisions shall remain in
full force and effect as set forth in this Agreement.
(f) Remedies. Employee acknowledges that should he violate of any of
--------
the provisions set forth in this Paragraph 3, Company will suffer immediate and
irreparable harm for which Company will have no adequate remedy at law. In such
event, Company shall have the right, in addition to any other rights it may
have, to obtain in any court of competent jurisdiction injunctive relief to
restrain any breach or threatened breach of the covenants set forth herein.
4. CERTAIN RIGHTS OF COMPANY.
-------------------------
(a) Announcement. Employer shall have the sole right to make a public
------------
announcement of the terms, provisions, or execution of this Agreement, subject
to reasonable consultation with Employee; provided, however, that Company shall
not disclose the financial terms of this Agreement to any third party without
Employee's consent, except as may be necessary or desirable in dealings with or
in response to a governmental or administrative agency, including, but not
limited to, the Securities and Exchange Commission, or in connection with the
financing or sale of Company.
(b) Right to Insure. Company shall have the right to secure in its
---------------
own name, or otherwise, and at its own expense, key-person life insurance
covering Employee, and Employee shall have no right, title or interest in and to
such insurance. Employee shall assist Company in procuring such insurance by
submitting to any examinations and executing any applications and other
instruments as may be required by an insurance carrier to which application is
made for any such insurance.
5. TERMINATION.
-----------
(a) Disability. If Employee suffers from any physical and/or mental
----------
disability which renders him unable to perform the essential functions of his
duties under this Agreement, whether with or without reasonable accommodation,
for a period in excess of 180 consecutive days or 180 days in the aggregate
during any 9 month period, Company may, at its option, terminate this Agreement
by 10 days' written notice to that effect. Such termination shall, except as
specifically provided herein, terminate any and all obligations to Employee
under this Agreement effective as of such 10th day, other than Employee's then
accrued rights pursuant to the Agreement, including, but not limited to,
Employee's accrued right to receive a bonus for: (i) performance as measured by
pre-tax net income, pro-rated through the effective date of termination.
References to the accrued bonus right described in the previous sentences shall
be known as "Accrued Bonus."
<PAGE>
It is specifically understood that Company shall continue to pay
Employee all compensation provided hereunder throughout such 180 day period and
thereafter until such tenth day following the written notice provided for
herein.
In the event of a disagreement concerning Employee's disability, the
matter shall be resolved by a majority decision of 3 practicing physicians, 1
selected by Employee, 1 selected by Company, and 1 selected by both such
physicians.
(b) Death. In the event Employee dies during the term of this
-----
Agreement, such death shall, except as specifically provided below, terminate
any and all obligations to Employee under this Agreement effective as of the
date of death; provided, however, that such termination shall not apply to any
rights accrued by Employee pursuant to this Agreement prior to his death,
including, but not limited to, Employee's Accrued Bonus.
(c) Cause. Company may, at any time, immediately terminate Employee's
-----
engagement hereunder for "Cause" by giving Employee written notice of such
termination. "Cause" shall mean (i) conviction of Employee for a felony or a
crime involving a high degree of moral turpitude, (ii) the commission by
Employee of an act or acts of dishonesty intended to result, directly or
indirectly, in gain or personal enrichment at the expense of Company or any of
its subsidiaries or affiliates, (iii) certification by a medical doctor that
Employee is a habitual alcoholic or is a narcotic addict, (iv) Employee's breach
of any of the material provisions of this Agreement; provided, however, Employee
may not be terminated for Employee's failure to undertake different duties
materially outside the scope of those set forth in the Principal Agreement.
In the case of an event described in clause (iv) above, Company may
terminate Employee's engagement hereunder only by giving Employee 30 days' prior
written notice, during which period Employee shall have the opportunity to cure
any breach. If such breach is cured, such notice shall be deemed rescinded. If
there is a dispute as to whether or not an alleged breach has been cured, the
dispute will be resolved by a committee of three people, one of whom is selected
by Company, one of whom is selected by Employee, and one of who is selected by
the other two. During the period that the committee is being selected and is
making its determination, Employee will continue to be compensated pursuant to
the terms of this Agreement.
Should the breach not be cured, the giving of such notice of
termination shall terminate all obligations of the parties hereunder (except
those obligations which by their terms survive the termination of this
Agreement) effective 30 days after such written notice, except that Employee
shall be entitled to any rights accrued by Employee pursuant to this Agreement
prior to said termination, including, but not limited to, Employee's Accrued
Bonus; provided, however, that if Employee is convicted of a crime as specified
in this Paragraph, Company, in its sole discretion, may convert any or all of
Employee's stock options issued pursuant to this Agreement into an obligation of
Company to pay Employee in cash, within 90 days, the value of such stock as of
the date of the Company's purchase, less Employee's aggregate exercise price.
The per share value of such stock shall be determined by the (i) closing price
of Company's shares as reported on a stock exchange (if the shares are listed on
a stock exchange) listing such shares on the purchase date, or (ii) the average
of the bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") for the 10 trading
days immediately prior to the purchase date (if the stock is reported by
NASDAQ). If the Company's stock is not traded either on an exchange or by
<PAGE>
NASDAQ as of 10 trading days prior to the purchase date, the value of the stock
shall be determined by averaging the appraisals of two expert appraisers, 1
selected by Company and 1 selected by Employee.
Notwithstanding any provision contained herein to the contrary, upon
the death or disability of Employee during the term of this Agreement, any
amounts due and payable to Employee as of the date of death or disability
pursuant to the Agreement shall be payable to Employee, or the person(s)
designated by Employee, or to Employee's successors, heirs and assigns.
6. SEVERANCE PAY. In the event Employee's services are terminated by
-------------
Company, other than pursuant to Paragraph 5 above, prior to the completion of
the Term, or in the event that Company materially fails to perform its
obligations hereunder for more than 30 days after written notice from Employee
and Employee thereafter terminates this Agreement by written notice to Company,
or in the event of a "change in control" of Company (as defined below) and
Employee thereafter terminates this Agreement by written notice to Company,
Employee shall receive Employee's entire fixed compensation for the balance of
the Term, in addition to any rights accrued by Employee pursuant to this
Agreement prior to said event, including, but not limited to, Employee's Accrued
Bonus. This total sum will be paid to Employee no later than 120 days from the
date of such termination or notification by Employee, during which period
Employee will continue to receive his fixed compensation and appropriate
reimbursements.
For the purposes of this provision, a "change in control" of Company
shall be deemed to have occurred within 60 days if Employee ceases to control
Company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended; provided that Employee does not consent to such change in control and
such change in control is not caused by Employee's death or mental disability.
7. INDEMNIFICATION BY COMPANY. Company shall, to the fullest extent
--------------------------
permitted by law, indemnify Employee for any claims, including, but not limited
to, tort claims, bad faith claims, contract claims, demands, liabilities, debts,
accounts, obligations, damages, compensatory damages, punitive damages,
liquidated damages, costs, reasonable attorneys' fees, expenses, actions and
causes of action, sustained by Employee by reason of the fact Employee is or was
an employee, officer or director of Company or any of its affiliates.
<PAGE>
Company also agrees to furnish Employee, if applicable, with the same directors'
and officers' liability insurance furnished to other comparable officers of
Company from time to time. This provision shall survive termination of this
Agreement.
8. GENERAL.
-------
(a) Headings. The subject headings of the paragraphs and
--------
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
(b) Severability. It is agreed that if any term, covenant, provision,
------------
paragraph or condition of this Agreement shall be illegal, such illegality shall
not invalidate the whole Agreement but it shall be construed as if not
containing the illegal part, and the rights and obligations of the parties shall
be construed and enforced accordingly.
(c) Entire Agreement. The parties hereto agree that this Agreement
----------------
supersedes all prior, existing, or contemporaneous negotiations, representations
and/or agreements between Company and Employee, whether oral, written, expressed
or implied, and contains the entire understanding and agreement between the
parties. This Agreement shall not be amended, modified, or supplemented in any
respect except by a subsequent written agreement entered into by both parties
hereto.
(d) Choice of Law. This Agreement and the performance hereunder shall
-------------
be construed in accordance with and under and pursuant to the internal
substantive laws of the State of California applicable to agreements fully
executed and performed entirely in such state.
(e) No Joint Venture. Nothing herein contained shall constitute a
----------------
partnership between or joint venture by the parties hereto. No party shall hold
itself out contrary to the terms of this Paragraph and, except as otherwise
specifically provided herein no party shall become liable for the
representation, act or omission of any other party. This Agreement is not for
the benefit of any third party who is not referred to herein and shall not be
deemed to give any right or remedy to any such third party.
(f) Contractual Nomenclature. All references herein to "Dollars" or
------------------------
"$" shall mean Dollars of the United States of America, its legal tender for all
debts public and private. Wherever used herein and to the extent appropriate,
the masculine, feminine or neuter gender shall include the other two genders,
the singular shall include the plural, and the plural shall include the
singular.
<PAGE>
(g) Modification and Waiver. No provision of this Agreement may be
-----------------------
amended, modified, waived or discharged unless such amendment, modification,
waiver or discharge is agreed to in writing signed by Employee and by an
authorized officer of Company designated by Company for such purpose. No waiver
of either party hereto at any time of any breach by the other party hereto of or
compliance with any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JUL-01-1996 SEP-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 294,172 0
<SECURITIES> 0 0
<RECEIVABLES> 7,376,248 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,614,983 0
<PP&E> 1,614,420 0
<DEPRECIATION> 292,165 0
<TOTAL-ASSETS> 13,274,262 13,274,262
<CURRENT-LIABILITIES> 6,295,134 6,295,134
<BONDS> 0 0
0 0
0 0
<COMMON> 66,933 66,933
<OTHER-SE> 6,912,195 6,912,195
<TOTAL-LIABILITY-AND-EQUITY> 13,274,262 13,274,262
<SALES> 0 0
<TOTAL-REVENUES> 29,537,842 15,721,323
<CGS> 23,593,378 12,447,460
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 5,176,966 2,893,407
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,660 6,584
<INCOME-PRETAX> 778,224 409,880
<INCOME-TAX> 103,492 103,492
<INCOME-CONTINUING> 674,732 306,388
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 674,732 306,388
<EPS-PRIMARY> .10 .05
<EPS-DILUTED> 0 0
</TABLE>
