<PAGE> 1
FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended May 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
---
For the transition period period from to
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Commission File Number 0-27664
UNIDIGITAL INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3856672
(State of Incorporation) (IRS Employer
Identification No.)
20 West 20th Street
9th Floor
New York, NY 10011
(Address of principal executive offices)
(212) 337-0330
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the Company's $.01 par value Common Stock outstanding as
of July 12, 1996 is 3,150,000 shares.
Transitional Small Business Disclosure Format. Yes No X
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UNIDIGITAL INC.
FORM 10-QSB
INDEX
Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of May 31, 1996
(unaudited) and August 31, 1995 3
Consolidated Statements of Operations for the Three
Months Ended May 31, 1996 and 1995 (unaudited) 4
Consolidated Statements of Operations for the Nine
Months Ended May 31, 1996 and 1995 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine
Months Ended May 31, 1996 and 1995 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis or Plan
of Operation. 10
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 15
SIGNATURES 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNIDIGITAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash & cash equivalents $ 4,765,963 $ 186,802
Accounts receivable, net of allowance of
$138,000 in 1996 and $110,000 in 1995 3,171,621 2,334,275
Prepaid expenses and other current assets 497,065 266,115
------------ ------------
Total current assets 8,434,649 2,787,192
Property, plant and equipment, net 4,403,441 2,965,376
Goodwill 790,443 776,539
Other assets 95,918 20,905
------------ ------------
Total Assets $ 13,724,451 $ 6,550,012
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Due to banks $ 1,320,174 $ 816,317
Current portion of long term bank debt 157,500 -
Current portion of capital lease obligations 709,207 644,299
Current portion of payments for acquisition
of business and cancellation of options 306,323 139,545
Accounts payable and accrued expenses 1,259,924 792,936
Income taxes payable 533,543 310,675
Loans and notes payable to stockholders 694,139 -
Deferred income taxes 117,835 62,000
------------ ------------
Total current liabilities 5,098,645 2,765,772
Loans and notes payable to stockholders - 190,172
Long term bank debt less current portion 76,666 -
Noncurrent portion of capital lease obligations 1,129,455 810,888
Noncurrent portion of payments for acquisition
of business and cancellation of options - 139,545
Deferred income taxes 358,000 39,000
------------ ------------
Total liabilities 6,662,766 3,945,377
Stockholders' equity:
Preferred stock, par value $.01 - -
Common stock, par value $.01 31,500 3,015
Additional paid-in-capital 5,319,480 162,803
Retained earnings 1,735,739 2,450,834
Cumulative foreign translation adjustment (25,034) (12,017)
------------ ------------
Total stockholders' equity 7,061,685 2,604,635
------------ ------------
Total Liabilities and Stockholders' Equity $ 13,724,451 $ 6,550,012
============ ============
</TABLE>
See notes to financial statements.
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UNIDIGITAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MAY 31, 1996 & 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Net sales $ 3,298,072 $ 2,480,805
EXPENSES
Cost of sales 1,422,973 1,137,598
Selling general and administrative expenses 1,041,776 645,291
Principal stockholder/officers' compensation 108,715 175,201
----------- -----------
Total operating expenses 2,573,464 1,958,090
----------- -----------
Income from operations 724,608 522,715
Interest expense (88,374) (44,466)
Interest and other income 30,567 -
----------- -----------
Income before income tax 666,801 478,249
Provision for income taxes 270,711 107,470
----------- -----------
Net income $ 396,090 $ 370,779
=========== ===========
Net income per common share $ .13 $ .19
=========== ===========
Weighted average common shares outstanding 3,150,000 2,000,000
</TABLE>
See notes to financial statements.
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UNIDIGITAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
MAY 31, 1996 & 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Net sales $ 8,557,322 $ 6,203,066
EXPENSES
Cost of sales 3,852,896 2,809,151
Selling general and administrative expenses 2,577,711 1,596,246
Principal stockholder/officers' compensation 381,484 562,201
----------- -----------
Total operating expenses 6,812,091 4,967,598
----------- -----------
Income from operations 1,745,231 1,235,468
Interest expense (231,591) (130,184)
Interest and other income 61,399 -
----------- -----------
Income before income tax 1,575,039 1,105,284
Provision for income taxes (including
nonrecurring provision relating to
termination of subchapter S status
on February 1, 1996) 906,711 262,470
----------- -----------
Net income $ 668,328 $ 842,814
=========== ===========
Net income per common share $ .27 $ .42
=========== ===========
Weighted average common shares outstanding 2,472,000 2,000,000
Pro forma income data:
Historical income before income taxes $ 1,575,039
Pro forma adjustment for principal
stockholder/officers' compensation 72,769
-----------
Pro forma income before income taxes 1,647,808
Pro forma income taxes 687,000
-----------
Pro forma net income $ 960,808
===========
Pro forma income per common share $ .39
===========
</TABLE>
See notes to financial statements.
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UNIDIGITAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MAY 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 668,328 $ 842,814
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 651,915 366,237
Provision for deferred income taxes 362,272 92,530
Provision for doubtful accounts 41,035 54,745
Loss on sale of equipment 1,181 -
Changes in assets and liabilities-
Accounts receivable (800,634) (1,283,155)
Prepaid expenses and other current assets (304,193) (80,232)
Other assets (18,153) (725)
Accounts payable and accrued expenses 436,301 211,419
Income taxes payable 124,164 195,576
----------- -----------
Total adjustments 493,888 (443,605)
----------- -----------
Net cash provided by operating activities 1,162,216 399,209
----------- -----------
Cash Flows from Investing Activities:
Additions to property and equipment (898,530) (356,503)
Proceeds from sale of equipment 9,234 -
Business acquisitions (85,000) (348,591)
----------- -----------
Net cash used in investing activities (974,296) (705,094)
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from lines of credit and other
bank borrowings 500,871 423,208
Proceeds from long-term bank borrowings 250,000 -
Payments of long-term bank borrowings (15,834) -
Payments on capital lease obligations (682,894) (381,608)
Payments of notes for cancellation
of options and acquisition of business (250,250) -
Stockholder loans 190,172
Dividends paid (750,000) -
Proceeds from sale of common stock, net of
issuance costs 5,353,755 -
----------- -----------
Net cash provided by financing activities 4,405,648 231,772
----------- -----------
Effect of Foreign Exchange Rates on Cash: (14,407) 6,472
----------- -----------
NET INCREASE (DECREASE) IN CASH/CASH EQUIVALENTS 4,579,161 (67,641)
Cash and cash equivalents at beginning of period 186,802 167,420
----------- -----------
Cash and cash equivalents at end of period $ 4,765,963 $ 99,779
=========== ===========
Supplemental disclosures:
Interest paid $ 214,622 $ 147,919
=========== ===========
Income taxes paid $ 349,036 $ 16,521
=========== ===========
Noncash transactions:
Equipment acquired under capital
lease obligations $ 1,013,849 $ 569,018
=========== ===========
Notes payable issued as dividends $ 498,000
===========
</TABLE>
See notes to financial statements
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UNIDIGITAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
1. Organization and Basis of Presentation
Unidigital Inc. ("Unidigital"), a Delaware corporation, was organized on October
18, 1995 for the purpose of becoming the parent holding company for Linographics
Corporation ("Linographics") and Elements (UK) Limited ("Elements")
(collectively, the "Predecessor Companies") and Linographics (Delaware)
Corporation ("Linographics Delaware"). Unless the context requires otherwise,
all references herein to the "Company" mean collectively, Unidigital, the
Predecessor Companies, Linographics Delaware and TX Corporation.
Unidigital conducts operations through three wholly owned subsidiaries,
Linographics, Elements and Linographics Delaware. Linographics engages in the
digital prepress business in New York City. Elements engages in the digital
prepress business and through its wholly-owned subsidiary, Regent Communications
Limited ("Regent") operates the document production and digital print business
in London. Linographics Delaware owns and operates the San Francisco based
operations ("TX Corporation"). See Note 2.
On February 6, 1996 Unidigital completed an initial public offering (the "IPO")
of 1,000,000 shares of Common Stock at a price of $6.00 per share, and on
February 21, 1996 the underwriters exercised their overallotment option for the
purchase of an additional 150,000 shares. Unidigital realized net proceeds of
approximately $5,500,000. The Company used a portion of the net proceeds of the
IPO to repay certain indebtedness under the Company's credit facilities and for
general operational and working capital purposes. The Company intends to use the
balance of such funds for acquisitions of businesses and working capital.
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with Item 310(b) of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of the Company at
May 31, 1996 and its results of operations and the cash flows for the periods
presented. Results for the interim periods are not necessarily indicative of
results to be expected for the full year. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Registration Statement on Form SB-2 (File No.
33-99656) declared effective February 1, 1996.
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<PAGE> 8
UNIDIGITAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Recent Developments
On March 14, 1996 Linographics Delaware purchased certain assets for $170,000
and assumed certain liabilities aggregating $140,500 of TX Unlimited, Inc.
("TX"), a San Francisco, California based graphics arts company. The purchase
price included an $85,000 payment at closing and the balance of $85,000 which is
payable in eight quarterly installments of $11,600, which includes interest at
6% per annum. The acquisition was recorded using the purchase method of
accounting. The assets, liabilities and operations of TX are not material in
relation to those of the Company.
3. Foreign Currency Translation
The portion of the Company's financial statements relating to the United Kingdom
operations are translated into U.S. Dollars using period end exchange rates (One
Pound = $1.55 at August 31, 1995 and $1.55 at May 31, 1996 for balance sheet
accounts) and average exchange rates (One pound = $1.58 for the year ended
August 31, 1995; and $1.53 and $1.61 for the three months ended May 31, 1996 and
1995, respectively; and $1.54 and $1.59 for the nine months ended May 31, 1996
and 1995, respectively. The translation difference is reflected as a separate
component of stockholders' equity.
4. Termination of Subchapter S Status and Related Income Tax Matters
Linographics previously filed federal and state income tax returns under
Subchapter S of the Internal Revenue Code in which its income was reportable by
and taxed to its stockholders. As a result of the IPO, the Subchapter S status
was necessarily terminated effective February 1, 1996. Accordingly, $367,000 of
federal, state and local income taxes, applicable to temporary differences in
the recognition of income and expenses for financial accounting and income tax
reporting purposes existing at February 1, 1996, has been recorded and charged
to operations for the nine month period ended May 31, 1996. These nonrecurring
charges result solely from the termination of the Subchapter S status in the
United States.
Subsequent to February 1, 1996 income taxes on U.S. earnings are taxed at a
combined effective tax rate of approximately 46.5%, whereas previously, only
local income taxes on U.S. earnings were payable at the corporate level.
5. Stockholders' Equity
Common Stock
The Company has authorized 10,000,000 shares of Common Stock, $.01 par value, of
which 3,150,000 shares were issued and outstanding at May 31, 1996. The Company
has reserved for issuance i) 300,000 shares of Common Stock upon exercise of
options granted or to be granted under its Stock Option Plans and ii) 80,000
shares of Common Stock upon exercise of warrants issued to Burnham Securities
Inc., the managing underwriter of the Company's IPO. In addition, the Company
has granted options to purchase 50,000 shares of Common Stock at an exercise
price of $6.00 per share as of May 31, 1996.
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<PAGE> 9
UNIDIGITAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Stockholders' Equity (continued)
Preferred Stock
The Company has authorized 5,000,000 shares of Preferred Stock, $.01 par value,
which may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board of Directors may determine
without further action by the Company's stockholders. There were no shares of
Preferred Stock issued, or approved for issuance as of May 31, 1996.
6. Per Share Data
Net income per common share is based on net income for the period divided by the
weighted average number of common shares outstanding. Average common shares
outstanding includes 3,150,000 shares of Common Stock.
7. Pro Forma Income Data
The pro forma net income and income per share data on the consolidated statement
of operations for the nine months ended May 31, 1996 presents the results that
would have been reported for this period based upon (i) the current level of
compensation of the Company's two principal stockholder/officers pursuant to
employment agreements effective January 1, 1996 and (ii) income taxes on United
States earnings based on a combined effective tax rate of 46.5% as if these had
occurred throughout the nine month period. See Note 4.
8. Other Pro Forma Information
The Company's results of operations include those of Regent which was acquired
on March 1, 1995 using the purchase method of accounting. Unaudited pro forma
results of operations for the nine months ended May 31, 1995, assuming the
acquisition of Regent on September 1, 1994, are as follows:
<TABLE>
<S> <C>
Net sales $6,978,125
==========
Income before taxes 890,160
==========
Net income 992,938
==========
Pro forma net income per common share $ .50
==========
Common shares outstanding 2,000,000
</TABLE>
The operations of TX prior to the acquisition on March 14, 1996 have not been
included in the above pro forma information since they were not material.
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<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company provides a full range of digital prepress services to the
professional graphic design industry in the New York City, San Francisco and
London markets. Digital prepress services involve preparing an image for
reproduction by any of several printing processes. Using advanced computer
technology, the Company provides the imaging and reproduction services required
by graphic designers in connection with the creation of designs for their
clients, which include end-users of printed media such as consumer product
packaging, marketing and advertising materials. The Company's services afford
graphic designers the ability to make numerous changes and enhancements in their
designs throughout the design approval process with shorter turnaround times and
at reduced costs as compared to traditional prepress methods. Once a design is
approved, the Company provides the vital technological and service interface
between graphic designers and traditional commercial volume printers necessary
to translate the approved design into the format required for volume printing.
The Company's services also include digital scanning, document creation services
such as typesetting and short run digital printing.
Financial Condition at May 31, 1996:
<TABLE>
<S> <C>
Working Capital $ 3,336,004
Total Assets 13,724,451
Stockholders' Equity 7,061,685
</TABLE>
Results of Operations
Comparison of Three Months Ended May 31, 1996 and 1995
Net sales for the three months ended May 31, 1996 increased 32.9% to $3,298,072
compared to $2,480,805 for the three months ended May 31, 1995. These increases
are principally due to volume growth in both the U.S. and London operations. Net
sales for the Company's United Kingdom operations for the three months ended May
31, 1996 increased 38.3% to $1,776,421 compared to $1,284,684 for the three
months ended May 31, 1995. Net sales for the Company's U.S. operations for the
three months ended May 31, 1996 increased 27.2% to $1,521,651 compared to
$1,196,121 for the three months ended May 31, 1995.
Cost of sales for the three months ended May 31, 1996 increased 25.1% to
$1,422,973 compared to $1,137,598 for the three months ended May 31, 1995. These
increases in production costs are directly related to the increase in revenues.
Cost of sales for the Company's United Kingdom operations for the three months
ended May 31, 1996 increased 44.1% to $881,747 compared to $611,735 for the
three months ended May 31, 1995 primarily associated with the increase in sales
and Regent's digital print business which commenced operations in the first
quarter of fiscal 1996 and the associated higher cost of sales related to
digital print. Cost of sales for the Company's U.S. operations for the three
months ended May 31, 1996 increased 2.9% to $541,226 compared to $525,863 for
the three months ended May 31, 1995.
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<PAGE> 11
Selling general and administrative expenses for the three months ended May 31,
1996 increased 61.4% to $1,041,776 compared to $645,291 for the three months
ended May 31, 1995. These increases are primarily attributable to variable
expenses commensurate with increased revenues. Selling general and
administrative expenses for the Company's U.K. operations for the three months
ended May 31, 1996 increased 18.5% to $419,256 compared to $353,698 for the
three months ended May 31, 1995. Selling general and administrative expenses for
the Company's U.S. operations for the three months ended May 31, 1996 increased
113% to $622,520 compared to $291,593 for the three months ended May 31, 1995.
This growth in U.S. costs primarily relates to additional administrative
personnel, costs associated with Unidigital which didn't exist in 1995 and the
transition of customer accounts (from non-commission) to commissioned sales
personnel.
Principal stockholder/officers' compensation for the three months ended May 31,
1996 decreased 37.9% to $108,715 compared to $175,201 for the three months ended
May 31, 1995. This decrease is due to the implementation of employment contracts
with the Company's two principal stockholders/officers.
Income from operations for the three months ended May 31, 1996 increased 38.6%
to $724,608 compared to $522,715 for the three months ended May 31, 1995
primarily attributable to increased sales.
Net interest expense for the three months ended May 31, 1996 was $88,374
compared to $44,466 for the three months ended May 31, 1995. This increase is
due to higher borrowings under the Company's combined credit facilities and
increase in capital leases, offset in part by interest income relative to the
Company's IPO proceeds.
Income tax expense for the three months ended May 31, 1996 increased to $270,711
compared to $107,470 for the three months ended May 31, 1995. The Company
currently pays Federal, state and local income tax at the corporate level for
its U.S. operations where previously Linographics paid only local corporate
income tax on the U.S. operations as a result of its Subchapter S corporation
status.
Net income for the three months ended May 31, 1996 increased 6.8% to $396,090
compared to $370,779 for the three months ended May 31, 1995 due to the factors
described above.
Comparison of Nine Months Ended May 31, 1996 and 1995
Net sales for the nine months ended May 31, 1996 increased 38% to $8,557,322
compared to $6,203,066 for the nine months ended May 31, 1995. These increases
are principally due to volume growth in both the U.S. and London operations. Net
sales for the Company's United Kingdom operations for the nine months ended May
31, 1996 increased 58.7% to $4,474,685 compared to $2,820,328 for the nine
months ended May 31, 1995. This growth is due, in part, to the inclusion of a
full nine months of operations for Regent compared to three months (March 1,
1995 through May 31, 1995) of operations during which it was owned by the
Company. Net sales for the Company's U.S. operations for the nine months ended
May 31, 1996 increased 20.7% to $4,082,637 compared to $3,382,738 for the nine
months ended May 31, 1995.
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<PAGE> 12
Cost of sales for the nine months ended May 31, 1996 increased 37.2% to
$3,852,896 compared to $2,809,151 for the nine months ended May 31, 1995. These
increases are commensurate with the increase in revenues and the inclusion of
Regent. Cost of sales for the Company's United Kingdom operations for the nine
months ended May 31, 1996 increased 72.4% to $2,211,954 compared to $1,283,069
for the nine months ended May 31, 1995 principally due to the inclusion of
Regent and the associated higher costs related to digital print. Cost of sales
for the Company's U.S. operations for the nine months ended May 31, 1996
increased 7.5% to $1,640,942 compared to $1,526,082 for the nine months ended
May 31, 1995.
Selling general and administrative expenses for the nine months ended May 31,
1996 increased 61.5% to $2,577,711 compared to $1,596,246 for the nine months
ended May 31, 1995. These increases are due to variable expenses commensurate
with increased revenues and additional costs associated with the Regent
acquisition. Selling general and administrative expenses for the Company's U.K.
operations for the nine months ended May 31, 1996 increased 47.7% to $1,180,390
compared to $799,432 for the nine months ended May 31, 1995. Selling general and
administrative expenses for the Company's U.S. operations for the nine months
ended May 31, 1996 increased 75.4% to $1,397,321 compared to $796,814 for the
nine months ended May 31, 1995. This growth in U.S. costs primarily relates to
additional administrative personnel, costs associated with Unidigital which
didn't exist in 1995 and the transition of customer accounts (from
non-commission) to commissioned sales personnel.
Principal stockholder/officers' compensation for the nine months ended May 31,
1996 decreased 32.1% to $381,484 compared to $562,201 for the nine months ended
May 31, 1995. This decrease is due to the implementation of employment
agreements with the two principal stockholders/officers.
Income from operations for the nine months ended May 31, 1996 increased 41.3% to
$1,745,231 compared to $1,235,468 for the nine months ended May 31, 1995
primarily attributable to increased sales and the inclusion of Regent sales for
the full nine months ended May 31, 1996 compared to the three months it was
owned by the Company in 1995 (March 1, 1995 through May 31, 1995).
Net interest expense for the nine months ended May 31, 1996 increased 77.9% to
$231,591 compared to $130,184 for the nine months ended May 31, 1995. This
increase is due to higher borrowings under the Company's combined credit
facilities and increases in capital leases offset in part by interest income
relative to the Company's IPO proceeds.
Income tax expense for the nine months ended May 31, 1996 increased to $906,711
compared to $262,470 for the nine months ended May 31, 1995. This increase is
principally attributable to a nonrecurring charge relating to the termination of
Linographics' Subchapter S corporation status. The Company currently pays
Federal, state and local income tax at the corporate level for its U.S.
operations where previously Linographics paid only local corporate income tax on
the U.S. operations as a result of its Subchapter S corporation status.
Net income for the nine months ended May 31, 1996 decreased 20.7% to $668,328
compared to $842,814 for the nine months ended May 31, 1995 due to the factors
described above.
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<PAGE> 13
Liquidity and Capital Resources
Cash Flow
The Company's principal source of funds have been the net proceeds from its
February 1, 1996 IPO of $5,500,000 and cash flow from operations. Cash flow from
operations for the nine months ended May 31, 1996 and 1995 were $1,162,216 and
$399,209, respectively. Cash used in investing activities for the nine months
ended May 31, 1996 and 1995 was $974,296 and $705,094, respectively. Cash flow
provided by financing activities for the nine months ended May 31, 1996 and 1995
was $4,405,648 and $231,772, respectively.
Bank Credit Facilities
The Company maintains borrowing arrangements with banks in both New York and
London. The Company has combined credit facilities with its New York bank for
its U.S. operations, aggregating $1,300,000 which consists of i) five year
$300,000 term loans, and ii) a $1,000,000 line of credit. The term loans bear
interest at either the bank's prime rate plus 1/2% or at a fixed rate determined
at the time of borrowing, at the Company's option. The line of credit bears
interest at prime plus 1/2%. At May 31, 1996 the Company's term loan balance was
$234,166 bearing interest at 9% and $75,000 was outstanding under the line of
credit. On June 27, 1996 the Company prepaid $137,500 of its term loans.
The credit facilities contain covenants which require the Company to maintain
certain tangible net worth and debt service coverage ratios based on the
combined assets of the U.S. parent and subsidiaries. At May 31, 1996 the Company
was in compliance with the covenants under the credit facilities. The credit
facilities, which are renewable annually each December, are secured by a first
priority lien on all of the assets of Linographics.
The Company's London operations have combined lines of credit of $697,500
(450,000 pounds) for working capital purposes which are renewable annually. At
May 31, 1996 the Company's outstanding balance under the line of credit is
approximately $703,000 (453,000 pounds) bearing interest at 9.25%. At May 31,
1996 the Company was in compliance with the covenants under the lines of credit.
Additionally, at May 31, 1996, the Company borrowed $542,500 (350,000 pounds)
from its bank which was collateralized by accounts receivable approximating the
same amount.
Proposed Acquisition
On June 5, 1996 the Company signed a letter of intent to acquire assets and
assume certain liabilities of Cardinal Communications Group, Inc. and its
affiliate, C-Max Graphics, Inc. (hereinafter, collectively "Cardinal"). Cardinal
provides desk top, prepress, design and printing services primarily to major
corporate accounts and publishing companies in the New York metropolitan area.
The Company is currently performing due diligence and the transaction is subject
to negotiation based upon the results of such due diligence procedures.
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<PAGE> 14
Inflation, Foreign Currency Fluctuations and Interest Rate Changes
Although the Company cannot accurately determine the precise effect thereof on
its operations, it does not believe inflation, currency fluctuations or interest
rate changes have historically had a material effect on revenues, sales or
results of operations. Inflation, currency fluctuations and changes in interest
rates have however, at various times, had significant effects on the economies
of the United States and United Kingdom and could adversely impact the Company's
revenues, sales and results of operations in the future. If there is a material
adverse change in the relationship between the United Kingdom Pound Sterling and
the United States Dollar, such change would adversely affect the results of the
Company's United Kingdom operations as reflected in the Company's financial
statements. The Company has not hedged its exposure with respect to this
currency risk, and does not expect to do so in the future, since it does not
believe that it is economically beneficial.
Forward - Looking Information
Except for the historical information contained in this Form 10-QSB, certain
information herein contains forward looking information. The matters referred to
in such statements could be affected by uncertainties involved in the Company's
business, including without limitation the effect of economic and market
conditions. Based upon the Company's current level of operations, management
believes that cash flow from operations and existing cash on hand, will be
adequate to meet the anticipated future requirements for working capital,
capital expenditures and scheduled payments of interest and principal under its
credit facilities and capital lease obligations.
- 14 -
<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Form 8-K
There were no reports filed on Form 8-K during the quarter
ended May 31, 1996.
- 15 -
<PAGE> 16
UNIDIGITAL INC.
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.
UNIDIGITAL INC.
/s/ William E. Dye
--------------------------------------
William E. Dye
President, Chief Executive Officer and
Chief Financial Officer (Principal
Executive, Financial and Accounting
Officer)
July 12, 1996
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AT MAY 31, 1996 AND FOR THE NINE
MONTH PERIOD ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 4,765,963
<SECURITIES> 0
<RECEIVABLES> 3,309,621
<ALLOWANCES> (138,000)
<INVENTORY> 0
<CURRENT-ASSETS> 8,434,649
<PP&E> 5,925,090
<DEPRECIATION> (1,521,649)
<TOTAL-ASSETS> 13,724,451
<CURRENT-LIABILITIES> 5,098,645
<BONDS> 0
0
0
<COMMON> 31,500
<OTHER-SE> 7,030,185
<TOTAL-LIABILITY-AND-EQUITY> 13,724,451
<SALES> 8,557,322
<TOTAL-REVENUES> 8,618,721
<CGS> 3,852,896
<TOTAL-COSTS> 3,852,896
<OTHER-EXPENSES> 2,918,160
<LOSS-PROVISION> 41,035
<INTEREST-EXPENSE> 231,591
<INCOME-PRETAX> 1,575,039
<INCOME-TAX> 906,711
<INCOME-CONTINUING> 668,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,328
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
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