SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported)
February 16, 1999 (November 30, 1998)
Unidigital Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-14126 13-3856672
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
229 West 28th Street, New York, New York 10001
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (zip code)
(212) 244-7820
------------------------------------------------
(Registrant's telephone number,
including area code)
---------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
As reported in the Current Report on Form 8-K dated December 14, 1998 filed
by Unidigital Inc. (the "Company"), on November 30, 1998, the Company
consummated the acquisition of all of the issued and outstanding capital stock
of SuperGraphics Holding Company, Inc., a Delaware corporation
("SuperGraphics"). As a result of the acquisition, SuperGraphics became a
wholly-owned subsidiary of the Company.
The Company hereby files this Amendment No. 1 on Form 8-K/A to file the
financial statements and related pro forma financial statements required
pursuant to Item 7 of Form 8-K with respect to such transaction.
<PAGE>
(a) FINANCIAL INFORMATION OF BUSINESS ACQUIRED.
SUPERGRAPHICS HOLDING COMPANY, INC. AND SUBSIDIARY
For the Year Ended
December 31, 1997
(With Report of Independent Certified Public Accountants)
<PAGE>
SUPERGRAPHICS HOLDING
COMPANY, INC.
AND SUBSIDIARY
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONTENTS
================================================================================
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
Consolidated balance sheet 4-5
Consolidated statement of income 6
Consolidated statement of stockholders' equity 7
Consolidated statement of cash flows 8
Summary of accounting policies 9-10
Notes to financial statements 11-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
SuperGraphics Holding Company, Inc. and Subsidiary
Sunnyvale, California
We have audited the consolidated balance sheet of SuperGraphics Holding Company,
Inc. and Subsidiary as of December 31, 1997, and the related statements of
income, stockholders' equity, and cash flow for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SuperGraphics Holding Company,
Inc. and Subsidiary at December 31, 1997, and the results of their operations
and their cash flow for the year then ended, in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
San Francisco, California
March 12, 1998
3
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
================================================================================
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
ASSETS (Note 3)
CURRENT
Cash and cash equivalents $ 284,925
Accounts receivable, less allowance for possible
losses of $35,000 (Note 2) 2,468,975
Inventory 203,092
Net deferred tax assets (Note 4) 151,000
Prepaid expenses and other 71,927
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,179,919
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Machinery and equipment 249,983
Computer equipment 208,463
Furniture and fixtures 5,318
Leasehold improvements 9,760
- --------------------------------------------------------------------------------
473,524
Less accumulated depreciation and amortization 155,863
- --------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 317,661
- --------------------------------------------------------------------------------
OTHER ASSETS
Deferred loan costs, net of accumulated amortization of $47,403 332,237
Goodwill, net of accumulated amortization of $390,783 (Note 1) 7,382,842
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS 7,715,079
- --------------------------------------------------------------------------------
$11,212,659
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
================================================================================
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 604,085
Accrued expenses 698,852
Accrued income taxes (Note 4) 440,180
Current portion, notes payable (Note 3) 1,761,388
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,504,505
- --------------------------------------------------------------------------------
Long-term portion, notes payable (Note 3) 5,050,494
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 8,554,999
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 6)
STOCKHOLDERS' EQUITY (Note 5)
Preferred stock, $0.10 par value-shares authorized, 6,000;
issued and outstanding 2,000 200
Common stock, $0.01 par value-shares authorized, 6,000,000;
issued and outstanding, 500,000 5,000
Additional paid-in capital 2,494,800
Retained earnings 157,660
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,657,660
- --------------------------------------------------------------------------------
$11,212,659
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
================================================================================
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
REVENUES $7,906,433
COST OF REVENUES, including depreciation of $160,975 4,801,043
- --------------------------------------------------------------------------------
Gross profit 3,105,390
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Marketing and sales 1,003,828
General and administrative 393,620
Amortization expense (Note 1) 438,745
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,836,193
- --------------------------------------------------------------------------------
OPERATING INCOME 1,269,197
OTHER INCOME (EXPENSE)
Interest income 8,778
Interest expense (681,015)
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 596,960
INCOME TAXES (Note 4) 439,300
- --------------------------------------------------------------------------------
NET INCOME $ 157,660
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
<CAPTION>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
=================================================================================================================================
Additional Total
Common Stock Preferred Stock Paid-In Retained Stockholders'
--------------------- ----------------
Shares Amount Shares Amount Capital Earnings Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock;
500,000 shares at $.01 per
share in January 1997 500,000 $5,000 - $ - $ 495,000 $ - $ 500,000
Issuance of preferred stock;
2,000 shares at $0.10 per
share in January 1997 - - 2,000 200 1,949,800 - 2,000,000
Net income for the year - - - - - 157,660 157,660
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 500,000 $5,000 2,000 $200 $2,494,800 $157,660 $2,657,660
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 157,660
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 160,975
Amortization 438,745
Changes in assets and liabilities, net of assets
acquired and liabilities assumed:
Accounts receivable (1,618,874)
Inventory (30,217)
Net deferred tax assets 4,000
Prepaid expenses and other 209,213
Accounts payable 838,196
Accrued expenses and taxes 285,811
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 445,509
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions 2,500,000
Payment for purchase of business, net of cash acquired (2,288,625)
Purchase of property and equipment (60,726)
- --------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 150,649
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred loan costs (380,199)
Payments on notes payable (1,155,000)
Advances from notes payable 1,223,966
- --------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (311,233)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH 284,925
CASH AND CASH EQUIVALENTS, beginning of year -
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 284,925
- --------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
================================================================================
ORGANIZATION AND SuperGraphics Holding Company, Inc. (the Company) was formed
NATURE OF BUSINESS to purchase the stock of SuperGraphics, Inc. which provides
short-run, photo realistic imaging of large format graphics
on self-adhesive vinyl in the transit, broadcast and signage
industries.
The Company is positioned as a wholesaler and sells its
products through media sales and production companies
primarily in the United States.
MANAGEMENT'S USE The preparation of financial statements in conformity with
OF ESTIMATES generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH The Company considers all highly liquid investments with an
EQUIVALENTS original or remaining maturity of three months or less at
the date of purchase to be cash equivalents.
REVENUE Revenues from product sales are recognized upon shipment if
RECOGNITION remaining obligations are insignificant and collection of
the resulting accounts receivable is probable. Where the
Company receives payments from customers in advance of
shipment of the product, those amounts are recognized as a
liability until shipment occurs.
INVENTORY Inventory consists of raw materials, stated at the lower of
cost (first-in, first-out) or market, and Jobs-in-Process
which includes accumulated material, labor and overhead
costs. Costs are applied to jobs at standards which
approximate actual cost.
PROPERTY, Property and equipment are stated at cost less accumulated
EQUIPMENT AND depreciation and amortization. Depreciation is provided
DEPRECIATION using the straight-line method over the estimated useful
lives of the assets. Equipment acquired under capital leases
is stated at cost and amortized on a straight-line basis
over the period of the lease.
9
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
================================================================================
WARRANTY The Company provides a one-year warranty regarding the
workmanship, including installation, of its product. Accrued
warranty costs of $75,000 are included in accrued expenses
on the consolidated balance sheet.
TAXES ON INCOME Income taxes are calculated using the liability method
specified by Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES. Deferred income tax assets
and liabilities are recognized based on temporary
differences between the financial statements and income tax
bases of assets, liabilities and carryforwards using enacted
tax rates. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount
expected to be realized.
GOODWILL Goodwill arose on the acquisition of the stock of
SuperGraphics, Inc. (the Subsidiary) by SuperGraphics
Holding Company, Inc. on January 3, 1997. The Company is
amortizing its goodwill over twenty years.
DEFERRED LOAN Deferred loan costs arose on the refinancing of the original
COSTS notes payable and are amortized over the approximate term on
the Company's Stepdown Revolving Term Loan (four years).
10
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ACQUISITION The Company commenced operations with the acquisition of
SuperGraphics, Inc.'s stock on January 3, 1997 for
approximately $10.6 million, including acquisition expenses.
The Company is also obligated to the former shareholders of
SuperGraphics, Inc. for "earn out" payments equal to 15% of
net operating income for 1999 and 2000, plus an additional
10% of amounts that exceed projected operating income.
Net assets acquired consisted of the following:
------------------------------------------------------------
Cash $1,599,000
Accounts receivable 850,000
Other current assets 609,000
Property and equipment 418,000
Accounts payable and accrued expenses (633,000)
------------------------------------------------------------
$2,843,000
------------------------------------------------------------
2. CERTAIN RISK AND The Company's products are concentrated in the entertainment
CONCENTRATIONS and retail industries which are highly competitive and
rapidly changing. The majority of the Company's sales are
referred from one media sales company. As of December 31,
1997, two customers account for 12.3% and 10.1% of accounts
receivable. Sales to these customers represented
approximately 4% and 3% of 1997 sales.
Supply for self-adhesive vinyl is concentrated among a few
providers. The loss of certain supplier relationships,
significant technological changes in the industry or
customer requirements, or the emergence of competitor
products with new capabilities or technologies could
adversely affect operating results.
3. NOTES PAYABLE DECEMBER 31, 1997
------------------------------------------------------------
Notes payable to previous stockholders of
SuperGraphics, Inc.
Non-interest bearing note payable in
quarterly installments of $241,513,
with $724,540 due as a final payment
on June 30, 1998. Discounted at 10%.
Unamortized discount at December 31,
1997 totals $41,133. $1,166,433
11
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
DECEMBER 31, 1997
------------------------------------------------------------
Notes payable to current shareholders
of SuperGraphics Holding Company,
Inc.
$1 Million Junior Promissory Notes
bearing interest at 8% from January
3, 1997 until the first payment of
principal ($500,000) on June 30,
1997, and at the rate of 15% until
the note is paid in full. The
balance of the note shall be due on
January 1, 1999. $ 500,000
Credit Agreement secured by majority
of the Company's assets. The
agreement requires the Company to
maintain certain financial covenants.
As of December 31, 1997, the Company
was in compliance with the covenants:
Stepdown Revolving Term Loan,
repayable in scheduled quarterly
installments. Interest is payable
monthly at the reference rate at
time of borrowing plus 1.75% or
LIBOR plus 3.75%, currently 10.25%.
The term loan terminates on July 1,
2001. 4,641,468
$1.5 Million Working Capital
Commitment, bearing interest at the
reference rate at time of borrowing
plus 1.75% or LIBOR plus 3.75%,
currently 10.25%. Interest is
payable monthly. The minimum loan
balance is $1,000. The working
capital commitment decreases based
upon certain asset or stock sales.
The loan terminates on July 1,
2001, with a possible extension for
an additional 12 months, but in no
event beyond July 1, 2003. 1,000
Term Loan, bearing interest at the
reference rate at the time of
borrowing plus 2.25% or LIBOR plus
4.25%, payable monthly, currently
10.75%. The loan is repayable in
scheduled quarterly installments.
The term loan terminates on July 1,
2003. 483,026
Other 19,955
------------------------------------------------------------
Total notes payable 6,811,882
Less current portion 1,761,388
------------------------------------------------------------
Long-term notes payable $5,050,494
------------------------------------------------------------
Principal payments due over the next five years total
approximately $1,761,000, $1,475,000, $1,675,000, $1,698,000
and $202,000.
12
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
4. INCOME TAXES The provision for income taxes is as follows:
1997
------------------------------------------------------------
CURRENT
Federal $364,000
State 53,000
------------------------------------------------------------
417,000
DEFERRED TAXES 22,300
------------------------------------------------------------
$439,300
------------------------------------------------------------
The Company's effective income tax rate is in excess of
statutory rates primarily because of nondeductible goodwill
totaling approximately $400,000.
The Company's net deferred tax assets are as follows:
1997
------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 15,000
Accrued vacation and payroll 27,500
Other accruals 83,000
California net operating loss carryforward (NOL) 49,000
------------------------------------------------------------
174,500
Deferred tax liabilities:
Accumulated depreciation (23,500)
------------------------------------------------------------
Net deferred tax assets $151,000
------------------------------------------------------------
As of December 31, 1997, the Company has approximately
$550,000 of California net operating loss carryforwards
remaining from its acquisition of SuperGraphics, Inc. The
NOLs expire in 2002.
13
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. SHAREHOLDERS' Preferred Stock
---------------
EQUITY
The preferred stock issued and outstanding at December 31,
1997, consists of Series A Preferred Stock. The holders of
Series A Preferred Stock are entitled to receive dividends
prior to and in preference to any declaration or payment of
any dividends on common stock, at the rate of 10% (or $100)
per annum per share of Series A Preferred Stock, and no
more, payable quarterly, commencing January 3, 1997. Such
dividends are cumulative from the later of the date of
issuance of the shares of Series A Preferred Stock or the
most recent dividend payment date. Cumulative unpaid
dividends at December 31, 1997 total $200,000.
The shares of Series A Preferred Stock are redeemable at the
option of the Company, at any time, subject to certain
limitations, at a call price of $1,020 per share during 1998
and $1,010 per share during 1999 and thereafter, plus all
accrued and unpaid dividends.
In the event of any liquidation, dissolution or winding up
of the affairs of the Company, the holders of shares of
Series A Preferred Stock are entitled to receive, in cash,
out of the remaining net assets of the Company, $1,000 plus
accrued and unpaid dividends for each share, in preference
to the holders of common stock.
Common Stock
------------
The Company has a stock option plan (the Plan) under which
55,556 shares of the Company's common stock have been
reserved for grant of stock options to employees, directors
or consultants under terms and provisions established by the
Board of Directors. Options may only be exercised when
vested. Options generally vest ratably over a four-year
period commencing at the grant date.
14
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
The following table summarizes the stock option activity:
<TABLE>
<CAPTION>
Options
Available Options Outstanding
----------------------------
for Grant Shares Price Per Share
----------------------------------------------------------------------
<S> <C> <C> <C>
Options authorized 55,556
Options granted (27,778) 27,778 $1
----------------------------------------------------------------------
BALANCE, December 31, 1997 27,778 27,778 $1
----------------------------------------------------------------------
</TABLE>
In January 1998, 9,250 options were granted to employees.
As permitted by Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, the
Company uses the intrinsic value method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees, to
account for employee stock options. The Company applies APB
Opinion No. 25 and related interpretations in accounting for
its plans. Stock options are granted to employees with an
exercise price equal to the estimated fair market value of
the stock. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation cost
for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for
awards under the plan consistent with the method of FASB
Statement 123, the Company's net income would not have been
materially affected.
6. COMMITMENTS The Company leases its facility under a noncancelable
AND operating lease expiring in July 1999.
CONTINGENCIES
15
<PAGE>
SUPERGRAPHICS HOLDING COMPANY, INC.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
================================================================================
Future annual minimum lease payments under non-cancelable
operating leases as of December 31, 1997 are as follows:
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1998 $111,720
1999 65,170
------------------------------------------------------------
Total minimum lease payments $176,890
------------------------------------------------------------
Rent expense for the year ended December 31, 1997 was
$124,118.
The Company is currently disputing penalties and interest
charges of approximately $144,000 for late filing of the
1996 income tax return of SuperGraphics, Inc., which was
acquired on January 3, 1997. The Company does not believe
the outcome of this matter will have a material adverse
effect on its financial condition. This potential
liability is not accrued in the financial statements.
7. SUPPLEMENTAL Year ended December 31, 1997
------------------------------------------------------------
CASH FLOW Cash paid during the period for:
INFORMATION
Taxes $ 16,000
Interest $394,994
------------------------------------------------------------
In connection with the acquisition of SuperGraphics, Inc.,
the Company issued notes payable totaling approximately $6.7
million.
During 1997, the Company refinanced debt totaling $4.4
million.
16
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED).
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Financial Statements are based on the historical
financial statements of the Company, adjusted to give effect to the acquisition
of all of the capital stock of SuperGraphics by the Company (the "SuperGraphics
Acquisition"). The Pro Forma Statements of Operations for the three months ended
November 30, 1998 and the twelve months ended August 31, 1998 assume that the
SuperGraphics Acquisition occurred as of the first day of the applicable period
and are adjusted to give effect to the merger of Hy Zazula Associates, Inc., a
New York corporation, into a wholly-owned subsidiary of the Company on October
30, 1998 (the "Zazula Acquisition") and assume that such acquisition occurred as
of the first day of the applicable periods. In addition, the Pro Forma Statement
of Operations for the twelve months ended August 31, 1998 is adjusted to give
effect to the Company's acquisition of substantially all of the assets of Kwik
International Color, Ltd., a New York corporation, on March 25, 1998 (the "Kwik
Acquisition"), its acquisition of certain of the assets of Five Star Finishers,
Ltd., a United Kingdom corporation, on July 2, 1998 (the "Five Star
Acquisition") and its acquisition of all of the capital stock of Mega Art Corp.,
a New York corporation, on September 2, 1998 (the "Mega Art Acquisition") and
assumes that such acquisitions occurred as of September 1, 1997.
As noted above, the SuperGraphics Acquisition occurred on November 30,
1998. As a result, the balance sheet which is included in the Company's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1998 includes
the balance sheet items acquired in connection with the SuperGraphics
Acquisition. Accordingly, a pro forma balance sheet is not required to be filed
herewith.
The Pro Forma Financial Statements should be read in conjunction with the
audited consolidated financial statements of the Company and the related notes
thereto which are included in the Company's Annual Report on Form 10-KSB for the
year ended August 31, 1998, the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998, the Company's Current Report on Form 8-K/A2
dated December 17, 1998, the Company's Current Report on Form 8-K dated December
14, 1998, the Company's Current Report on Form 8-K/A dated November 16, 1998,
the Company's Current Report on Form 8-K dated November 16, 1998, the Company's
Current Report on Form 8-K dated September 14, 1998, the Company's Current
Report on Form 8-K/A dated June 8, 1998, the Company's Current Report on Form
8-K dated April 8, 1998 (each as filed with the Securities and Exchange
Commission) and the audited financial statements of SuperGraphics that are filed
herewith.
The pro forma financial information does not purport to present what
the Company's results of operations would actually have been if the
SuperGraphics Acquisition, the Zazula Acquisition, the Mega Art Acquisition, the
Five Star Acquisition and the Kwik Acquisition had occurred on the assumed
dates, as specified above, or to project the Company's financial condition or
results of operations for any future period.
<PAGE>
<TABLE>
<CAPTION>
UNIDIGITAL INC.
---------------
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------
THREE MONTHS ENDED NOVEMBER 30, 1998
------------------------------------
UNIDIGITAL ZAZULA* SUPERGRAPHICS** ADJUSTMENTS PRO FORMA
---------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Net sales................... $15,953,000 $600,000 $2,566,000 $ -- $19,119,000
----------- ---------- ------------ ----------- -----------
Expenses
Cost of sales............... 8,748,000 349,000 1,547,000 -- 10,644,000
Selling, general &
administrative expenses... 5,404,000 411,000 1,109,000 (a) 133,000 7,057,000
Expenses incurred due to
restructuring............. 198,000 -- -- -- 198,000
----------- ---------- ------------ ----------- ----------
Total operating expenses.... 14,350,000 760,000 2,656,000 133,000 17,899,000
Income from operations...... 1,603,000 (160,000) (90,000) (133,000) 1,220,000
Interest expense............ (1,167,000) -- (300,000) (b) (336,000) (1,803,000)
Interest expense-deferred
financing costs........... (56,000) -- -- (c) (24,000) (80,000)
Interest and other income-
net....................... 271,000 -- -- -- 271,000
----------- ---------- ------------ ----------- ----------
Income (loss) before income
taxes..................... 651,000 (160,000) (390,000) (493,000) (392,000)
Provision for income taxes.. 280,000 -- (162,000) (d) (265,000) (147,000)
----------- ---------- ------------ ----------- ----------
Net income (loss)........... $ 371,000 $(160,000) $(228,000) $ (228,000) $(245,000)
=========== ========== ============= =========== ==========
Net income (loss) per share
available to common
stockholders:
Basic..................... $ 0.08 $(0.05)
=========== ==========
Diluted................... $ 0.08
===========
Shares used to compute net
income per share:
Basic..................... 4,798,731 427,737 5,226,468
=========== =========== ==========
Diluted................... 4,885,905
===========
</TABLE>
* September 1, 1998 to October 30, 1998
** September 1, 1998 to November 30, 1998
<PAGE>
<TABLE>
<CAPTION>
UNIDIGITAL INC.
---------------
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------
YEAR ENDED AUGUST 31, 1998
--------------------------
UNIDIGITAL KWIK* FIVE STAR** MEGA ART
---------- ----- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Net sales...................... $47,389,000 $8,093,000 $576,000 $5,177,000
----------- ---------- ----------- ----------
Expenses
Cost of sales.................. 25,305,000 5,569,000 285,000 2,322,000
Selling, general &
administrative expenses...... 15,925,000 2,983,000 51,000 2,036,000
Expenses incurred due to
restructuring................ 771,000 -- -- --
---------- --------- ---------- ---------
Total operating expenses....... 42,001,000 8,552,000 336,000 4,358,000
Income (loss) from operations.. 5,388,000 (459,000) 240,000 819,000
Interest expense............... (1,913,000) (134,000) -- (32,000)
Interest expense-deferred
financing costs.............. (1,143,000) -- -- --
Interest and other (expenses)
income-net................... (75,000) 72,000 -- 334,000
----------- --------- ---------- --------
Income (loss) before income
taxes........................ 2,257,000 (521,000) 240,000 1,121,000
Provision for income taxes..... 978,000 79,000 74,000 481,000
---------- --------- ---------- ---------
Net income (loss) before
extraordinary item........... 1,279,000 (600,000) 166,000 640,000
Extraordinary item-loss on
early retirement of debt (net
of income tax benefit of
$137,000).................... (143,000) -- -- --
---------- --------- ---------- ---------
Net income (loss).............. $1,136,000 $(600,000) $ 166,000 $ 640,000
========== ========= ========== =========
Basic earnings (loss) per
common share:
Earnings before extraordinary
item....................... $0.36
Extraordinary item........... (0.04)
----------
Net income................... $0.32
==========
Diluted earnings (loss) per
common share:
Earnings before extraordinary
item....................... $0.34
Extraordinary item........... (0.04)
----------
Net income................... 0.30
==========
Shares used to compute net
income per share:
Basic...................... 3,530,836
==========
Diluted.................... 3,779,438
==========
</TABLE>
*September 1, 1997 to March 25, 1998
**September 1, 1997 to July 2, 1998
<PAGE>
<TABLE>
<CAPTION>
UNIDIGITAL INC.
---------------
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 (CONTINUED)
--------------------------------------
ZAZULA SUPERGRAPHICS ADJUSTMENTS PRO FORMA
------ ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Net sales........................... $4,094,000 $11,600,000 (e) $(576,000) $76,353,000
---------- ----------- --------- -----------
Expenses
Cost of sales....................... 1,695,000 6,892,000 (f) (576,000) 41,492,000
Selling, general & administrative
expenses.......................... 2,377,000 2,327,000 (g) (801,000) 24,898,000
Expenses incurred due to
restructuring..................... -- -- -- 771,000
---------- ----------- ---------- -----------
Total operating expenses............ 4,072,000 9,219,000 (1,377,000) 67,161,000
Income (loss) from operations....... 22,000 2,381,000 801,000 9,192,000
Interest expense.................... (74,000) (729,000) (h) (3,097,000) (5,979,000)
Interest expense-deferred
financing costs................... -- -- (i) (100,000) (1,243,000)
Interest and other (expenses)
income-net........................ 5,000 -- -- 336,000
---------- ----------- ---------- -----------
Income (loss) before income
taxes............................. (47,000) 1,652,000 (2,396,000) 2,306,000
Provision for income taxes.......... 20,000 1,023,000 (j) (1,337,000) 1,318,000
---------- ----------- ---------- -----------
Net income (loss) before
extraordinary item................ (67,000) 629,000 (1,059,000) 988,000
Extraordinary item-loss on
early retirement of debt (net
of income tax benefit of
$137,000)......................... -- -- -- (143,000)
---------- ----------- ---------- -----------
Net income (loss).................. $(67,000) $629,000 $(1,059,000) $ 845,000
=========== =========== =========== ===========
Basic earnings (loss) per
common share:
Earnings before extraordinary
item.......................... $0.20
Extraordinary item ............... (0.03)
-----
Net income........................ $0.17
=====
Diluted earnings (loss) per
common share:
Earnings before extraordinary
item............................ $0.19
Extraordinary item................ (0.03)
-----
Net income........................ $0.16
=====
Shares used to compute net
income per share:
Basic....................... 1,322,617 4,853,453
========== ==========
Diluted..................... 1,528,845 5,308,283
========== ==========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
-----------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------
For purposes of determining the pro forma effect of the Zazula Acquisition
and the SuperGraphics Acquisition on the Company's income statement for the
three months ended November 30, 1998, the following pro forma adjustments have
been made:
<TABLE>
<CAPTION>
NOVEMBER 30,
1998
----
ZAZULA SUPERGRAPHICS
<S> <C> <C>
Cash received from borrowings $ 2,275,000 $ 17,000,000
Cash consideration for acquisitions (2,275,000) (16,514,000)
------------------------------------------
$ -- $ 486,000
==========================================
Consideration
-------------
Cash $ 2,275,000 $ 15,889,000
Issuance of 433,076 Common Shares at $5.25 per
share 2,275,000 --
Issuance of 135,393 Common Shares at $4.51 per
share -- 611,000
Warrants issued for acquisition* -- 931,000
Expenses of acquisition 288,000 625,000
------------------------------------------
Total Consideration 4,838,000 18,056,000
------------------------------------------
Total value of net assets acquired 412,000 1,284,000
------------------------------------------
Goodwill $ 4,426,000 $ 16,772,000
==========================================
</TABLE>
<TABLE>
<CAPTION>
ZAZULA SUPERGRAPHICS TOTAL
------ ------------- -----
<S> <C> <C> <C>
(a) Amortization of Goodwill $ 29,000 $ 168,000 $ 197,000
Additional (Excess) owners'
compensation (26,000) -- (26,000)
Employee Terminations (38,000) -- (38,000)
--------------------------------------------
(35,000) 168,000 133,000
============================================
(b) Additional Financing Costs $ 48,000 $ 288,000 $ 336,000
======== ========= =========
(c) Deferred Financing Costs $ 2,000 $ 22,000 $ 24,000
======== ========= =========
(d) Pro Forma Tax Adjustment $(81,000) $(184,000) $(265,000)
*Preliminary estimate.
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
-----------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------
For purposes of determining the pro forma effect of the Kwik Acquisition,
the Five Star Acquisition, the Mega Art Acquisition, the Zazula Acquisition and
the SuperGraphics Acquisition on the Company's income statement for the twelve
months ended August 31, 1998, the following pro forma adjustments have been
made:
<TABLE>
<CAPTION>
KWIK FIVE STAR MEGA ART ZAZULA SUPERGRAPHICS TOTAL
FINISHERS
<S> <C> <C> <C> <C> <C> <C>
(e) Reduction in intercompany sales $ -- $ (576,000) $ -- $ -- $ -- $ (576,000)
=========== =========== ========= ========= =========== ============
(f) Reduction in Outsource Expenses $ -- $ (576,000) $ -- $ -- $ -- $ (576,000)
=========== =========== ========= ========= =========== ============
(g) Amortization of Goodwill over 25
years $ 515,000 $ -- $ 411,000 $ 177,000 $ 671,000 $ 1,774,000
Excess owners' compensation (1,525,000) -- (541,000) (233,000) -- (2,299,000)
Employee Terminations -- -- -- (229,000) -- (229,000)
Professional Fees -- -- -- (47,000) -- (47,000)
--------- ---------- --------- --------- ----------- -----------
$(1,010,000) $ -- $(130,000) $(332,000) $ 671,000 $ (801,000)
=========== ========== ========= ========= =========== ===========
(h) Additional Financing Costs $ 1,218,000 $ 43,000 $ 493,000 $ 193,000 $ 1,150,000 $ 3,097,000
=========== ========== ========= ========= =========== ===========
(i) Deferred Financing Costs $ -- $ -- $ -- $ 11,000 $ 89,000 $ 100,000
=========== ========== ========= ========= =========== ===========
(j) Pro Forma Tax Adjustment $ (96,000) $ -- $(132,000) $ 17,000 $(1,126,000) $(1,337,000)
=========== ========== ========= ========= =========== ===========
</TABLE>
<PAGE>
(c) EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Form of Warrant Agreement issued to the
stockholders of SuperGraphics Holding
Company, Inc. (included as an exhibit to
the Current Report on Form 8-K of the
Company dated December 14, 1998 and
incorporated by reference herein).
4.2 Warrant Agreement dated as of November
25, 1998 by and between Unidigital
Inc. and CIBC Wood Gundy Capital Corp.
(included as an exhibit to the Current
Report on Form 8-K of the Company dated
December 14, 1998 and incorporated by
reference herein).
4.3 Registration and Equity Rights Agreement
dated as of November 25, 1998 by and
between Unidigital Inc. and CIBC Wood
Gundy Capital Corp. (included as an
exhibit to the Current Report on Form
8-K of the Company dated December 14,
1998 and incorporated by reference
herein).
10.1 Agreement for Purchase and Sale of Stock
dated as of November 16, 1998 by and
among Unidigital Inc., SuperGraphics
Holding Company, Inc. ("Holding"),
SuperGraphics Corporation and the
stockholders of Holding (included as an
exhibit to the Current Report on Form
8-K of the Company dated December 14,
1998 and incorporated by reference
herein).
10.2 Amendment No. 3 to Credit Agreement
dated as of November 30, 1998 by and
among Unidigital Inc., the several
lenders from time to time parties
thereto and Canadian Imperial Bank of
Commerce (included as an exhibit to the
Current Report on Form 8-K of the
Company dated December 14, 1998 and
incorporated by reference herein).
10.3 Securities Purchase Agreement dated as
of November 25, 1998 by and among
Unidigital Inc., Unison (NY), Inc.,
Unison (MA), Inc., Unidigital Elements
(NY), Inc., Unidigital Elements (SF),
Inc. and Mega Art Corp. (included as an
exhibit to the Current Report on Form
8-K of the Company dated December 14,
1998 and incorporated by reference
herein).
10.4 Senior Subordinated Increasing Rate Note
dated November 30, 1998 of Unidigital
Inc. payable to CIBC Wood Gundy Capital
Corp. in the principal amount of
$10,000,000 (included as an exhibit to
the Current Report on Form 8-K of the
Company dated December 14, 1998 and
incorporated by reference herein).
23.1 Consent of BDO Seidman, LLP.
<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, hereunto duly authorized.
Unidigital Inc.
By: /s/ William E. Dye
---------------------------------
William E. Dye, Chief Executive
Officer (Principal Executive,
Financial and Accounting Officer)
Date: February 16, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Form 8-K/A of our report dated March 12,
1998, on our audit of the consolidated financial statements of SuperGraphics
Holding Company, Inc. and Subsidiary as of December 31, 1997, and for the year
then ended, which report is included in this Form 8-K/A.
/s/ BDO Seidman, LLP
San Francisco, California
February 15, 1999
