U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1998
Commission file number 0-27664
UNIDIGITAL INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
229 West 28th Street, New York, New York 10001
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(Address of Principal Executive Offices)
(212) 244-7820
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(Issuer's Telephone Number,
Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
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State the number of shares outstanding of each of the Issuer's classes of
common equity, as of December 31, 1998:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 5,247,248
Transitional Small Business Disclosure Format (check one):
Yes: No: X
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.......................................1
CONSOLIDATED BALANCE SHEETS
as at November 30, 1998 (unaudited) and
August 31, 1998 (audited).....................................2
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended November 30, 1998 and
November 30, 1997 (unaudited).................................3
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended
November 30, 1998 and November 30, 1997
(unaudited)...................................................4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)........................................5
Item 2. Management's Discussion and Analysis
or Plan of Operation......................................13
General......................................................13
Results of Operations........................................13
Liquidity, Capital Resources and Other Matters...............15
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................20
Item 6. Exhibits and Reports on Form 8-K..........................21
SIGNATURES.............................................................25
i
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
<TABLE>
<CAPTION>
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
November 30, August 31,
1998 1998
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(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 886,000 $ 287,000
Accounts receivable (less allowance for doubtful
accounts of $649,000 and $331,000 at
November 30, 1998 and August 31, 1998, respectively).......... 22,695,000 16,917,000
Deferred financing costs, net.................................. 1,453,000 1,013,000
Prepaid expenses............................................... 4,479,000 2,727,000
Other current assets........................................... 3,193,000 3,360,000
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Total current assets........................................ 32,706,000 24,304,000
============ ===========
Property and equipment, net...................................... 17,314,000 14,591,000
Intangible assets, net........................................... 59,104,000 28,107,000
Other assets..................................................... 606,000 313,000
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Total assets................................................ $109,730,000 $67,315,000
============ ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.......................... $ 10,747,000 $ 8,571,000
Current portion of capital lease obligations................... 2,499,000 1,935,000
Current portion of long-term debt.............................. 5,183,000 3,610,000
Income taxes payable........................................... 1,556,000 887,000
Deferred income taxes.......................................... 272,000 249,000
Loans and notes payable to stockholders........................ 435,000 155,000
------------ -----------
Total current liabilities................................... 20,692,000 15,407,000
Capital lease obligations, net of current portion................ 4,682,000 2,830,000
Long-term debt, net of current portion........................... 59,688,000 33,978,000
Deferred income taxes............................................ 491,000 500,000
Loans and notes payable to stockholders, net of current portion.. 207,000 207,000
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Total liabilities........................................... 85,760,000 52,922,000
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STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
$.01 par value each; none issued or outstanding................ -- --
Common stock -- authorized 10,000,000 shares,
$.01 par value each; 5,247,248 shares and 5,089,085 shares
issued and outstanding at November 30, 1998 and
August 31, 1998, respectively.................................. 53,000 39,000
Additional paid-in capital....................................... 19,140,000 9,865,000
Retained earnings................................................ 4,745,000 4,374,000
Cumulative foreign translation adjustment........................ 32,000 115,000
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Total stockholders' equity.................................. 23,970,000 14,393,000
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Total liabilities and stockholders' equity.................. $109,730,000 $67,315,000
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</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended,
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November 30, November 30,
1998 1997
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<S> <C> <C>
REVENUES
Net sales................................................ $ 15,953,000 $ 9,726,000
EXPENSES
Cost of sales............................................ 8,748,000 5,041,000
Selling, general and administrative expenses............. 5,404,000 3,420,000
Expenses incurred due to restructuring................... 198,000 --
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Total operating expenses................................. 14,350,000 8,461,000
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Income from operations................................... 1,603,000 1,265,000
Interest expense......................................... (1,167,000) (423,000)
Interest expense -- deferred financing costs............. (56,000) (138,000)
Interest and other income - net.......................... 271,000 80,000
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Income before income taxes............................... 651,000 784,000
Provision for income taxes............................... 280,000 276,000
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Net income .............................................. $ 371,000 $ 508,000
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Net income per share available to common stockholders:
Basic................................................... $ 0.08 $ 0.16
============= ============
Diluted................................................. $ 0.08 $ 0.14
============= ============
Shares used to compute net income per share:
Basic................................................... 4,798,731 3,243,293
============= ============
Diluted................................................. 4,885,905 3,512,579
============= ============
</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended,
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November 30, November 30,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 371,000 $ 508,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization.................................................. 1,481,000 808,000
Gain on sale of assets......................................................... (315,000) --
Provision for deferred income taxes............................................ 17,000 (37,000)
Provision for bad debts........................................................ 74,000 23,000
Net changes in assets and liabilities net of effects of businesses acquired:
Accounts receivable.............................................................. (1,634,000) (1,775,000)
Prepaid expenses and other current assets........................................ 130,000 (1,317,000)
Other assets..................................................................... (204,000) (461,000)
Accounts payable and accrued expenses............................................ (2,154,000) 832,000
Income taxes payable............................................................. 230,000 244,000
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Net cash used in operating activities.............................................. (2,004,000) (1,175,000)
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INVESTING ACTIVITIES
Additions to property and equipment................................................ (396,000) (358,000)
Proceeds of sale of fixed assets................................................... 800,000 --
Business acquisitions.............................................................. (24,521,000) --
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Net cash used in investing activities.............................................. (24,117,000) (358,000)
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FINANCING ACTIVITIES
Payments of capital lease obligations.............................................. (617,000) (445,000)
Proceeds from long-term debt....................................................... 27,471,000 793,000
Payments of long-term debt......................................................... (132,000) (14,000)
Shareholder loan................................................................... (50,000) --
Common stock issued................................................................ 92,000 --
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Net cash provided by financing activities.......................................... 26,764,000 334,000
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Effect of foreign exchange rates on cash........................................... (44,000) 190,000
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Net increase (decrease) in cash and cash equivalents............................... 599,000 (1,009,000)
Cash and cash equivalents at beginning of period................................... 287,000 3,203,000
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Cash and cash equivalents at end of period......................................... $ 886,000 $2,194,000
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid...................................................................... $ 1,317,000 $ 461,000
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Income taxes paid.................................................................. $ 20,000 $ 82,000
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Noncash transactions:
Equipment acquired under capital lease obligations................................. $ 2,032,000 $ 261,000
=========== ===========
Business acquisitions (net of liabilities of $5,010,000)........................... $ 2,466,000 $ --
=========== ===========
Stock issued for business acquisitions............................................. $ 7,886,000 $ --
=========== ===========
Warrants issued for business acquisition........................................... $ 931,000 $ --
=========== ===========
Warrants issued for additional financing........................................... $ 380,000 $ --
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</TABLE>
The Notes to Consolidated Financial Statements are made a part hereof.
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE A - BASIS OF PRESENTATION:
The information presented for November 30, 1998, and for the three-month
periods ended November 30, 1998 and November 30, 1997, is unaudited, but, in the
opinion of the management of Unidigital Inc., its wholly-owned subsidiaries and
its and their subsidiaries, affiliated companies and predecessors (collectively,
the "Company"), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals) which the
Company considers necessary for the fair presentation of the Company's financial
position as of November 30, 1998 and the results of its operations and its cash
flows for the three-month periods ended November 30, 1998 and November 30, 1997.
The consolidated financial statements included herein have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended August
31, 1998, which were included as part of the Company's Annual Report on Form
10-KSB.
The consolidated financial statements include the accounts of Unidigital
Inc. and its direct and indirect subsidiaries. All significant intercompany
balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS:
The Company is a leading service business within the graphic arts industry
that provides imaging, reproduction and integrated media solution services to
advertising agencies, retailers, corporations, marketing/communications firms,
publishers, government agencies and financial institutions in the New York City,
Boston, San Francisco and London markets. Through active cross-selling among its
four divisions, Unison, KWIK, Elements and the Regent Group (collectively, the
"Unidigital Enterprise"), the Company provides imaging, reproductive and
integrated media solutions to each of the large format, digital prepress and
digital printing segments of the industry. Cross-selling among the Unidigital
Enterprise offers a total solution for customers, which the Company believes
creates a distinct advantage over competitors within the marketplace.
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
FOREIGN CURRENCY TRANSLATION:
The portion of the Company's financial statements relating to the Company's
United Kingdom operations are translated into United States Dollars using period
exchange rates ((pound)1.00 = $1.67 at August 31, 1998 and $1.65 at November 30,
1998, respectively for balance sheet accounts), and average exchange rates
((pound)1.00 = $1.67 and $1.70 for the three months ended November 30, 1998 and
November 30, 1997, respectively for income statement accounts). The translation
difference is reflected as a separate component of stockholders' equity.
EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted for years ending after December 15, 1997. Accordingly,
the Company has adopted the provisions of the new statement.
The following table sets forth the computation of basic and dilutive
earnings per share:
Three Months Ended,
-----------------------
November 30,
1998 1997
-----------------------
Numerator for basic and diluted earnings per
share-net income available for common
stockholders............................... $ 371,000 $ 508,000
========= =========
Denominator:
Denominator for basic earnings per share-
weighted average shares.................... 4,798,731 3,243,293
Effect of dilutive securities:
Stock options.............................. 9,515 79,931
Warrants................................... 77,659 189,355
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Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions........................ 4,885,905 3,512,579
========= =========
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
Three Months Ended,
-------------------------
November 30,
1998 1997
-------------------------
Stock Options.................. 563,066 30,000
Warrants....................... 342,000 25,000
NOTE C - STOCKHOLDERS' EQUITY:
COMMON STOCK:
As of December 31, 1998 5,247,248 shares of Common Stock were issued and
outstanding.
PREFERRED STOCK:
As of December 31, 1998 there were no shares of Preferred Stock issued or
approved for issuance.
NOTE D - STOCK OPTION PLANS AND WARRANTS:
Subsequent to the end of the quarter, on January 4, 1999, the Company
granted options to purchase 2,500 shares of its Common Stock to each of David
Wachsman and Harvey Silverman, at an exercise price of $5.00 per share.
In connection with the Company's subordinated unsecured loan (the
"Subordinated Loan") in the aggregate principal amount of $10,000,000 from CIBC
Wood Gundy Capital Corp. ("CWGCC"), on November 25, 1998, the Company issued
ten-year warrants to CWGCC to purchase 440,000 shares of the Company's Common
Stock at an exercise price of $4.50 per share. In the event the Company has not
paid the Subordinated Loan in full by November 30, 1999 (subject to extension in
certain instances), the Company will issue ten-year warrants to CWGCC to
purchase an additional 200,000 shares of the Company's Common Stock at an
exercise price not to exceed $5.00 per share. In the event the Subordinated Loan
has not been paid in full by May 31, 2001, the exercise price of such warrants
shall be reduced by $1.00 per share and, on each anniversary of such date, such
exercise price shall be reduced an additional $1.00 per share. In addition,
subject to certain limitations, the Company granted registration rights,
including demand registration rights, to CWGCC.
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
In connection with its acquisition (the "SuperGraphics Acquisition") of all
of the issued and outstanding capital stock of SuperGraphics Holding Company,
Inc. ("SuperGraphics"), on November 30, 1998, the Company issued five-year
warrants to purchase 225,000 shares of the Company's Common Stock at an exercise
price of $5.64 per share to the stockholders of SuperGraphics.
NOTE E - ACQUISITIONS:
On September 2, 1998, the Company consummated the acquisition (the "Mega
Art Acquisition") of all of the issued and outstanding capital stock of Mega Art
Corp., a New York corporation ("Mega Art"). As a result, Mega Art became a
wholly-owned subsidiary of the Company. The purchase price included an initial
cash payment of $5,800,000 and the issuance of 754,148 shares of restricted
Common Stock of the Company ($5,000,000). In addition, the purchase price
includes a deferred cash payment of $1,200,000 (the "Deferred Payment"), payable
180 calendar days after the closing date, and an earn-out payment of up to
$1,200,000 in cash and $1,200,000 in restricted Common Stock of the Company (the
"Earn-Out Payment"), payable on or before November 29, 1999. Each of the
Deferred Payment and the Earn-Out Payment are subject to adjustment based on the
financial performance of Mega Art. In addition, the Deferred Payment and the
Earn-Out Payment may also be used to satisfy any indemnification claims. The
Company funded the cash portion of the purchase price from the proceeds of a
$5,000,000 acquisition loan and a portion of a $10,000,000 revolving credit loan
from Canadian Imperial Bank of Commerce ("CIBC").
On October 30, 1998, the Company consummated the acquisition (the "Zazula
Acquisition") of Hy Zazula Associates, Inc., a New York corporation ("Zazula").
The purchase price included an aggregate cash payment of $2,275,000 and the
issuance of 433,076 shares of restricted Common Stock of the Company
($2,275,000). Of the purchase price, $150,000 in cash and 28,552 shares of
restricted Common Stock of the Company ($150,000) is being held in escrow for a
period of two years to satisfy any indemnification claims. The Company funded
the cash portion of the purchase price from proceeds of a portion of a
$15,000,000 revolving credit loan from CIBC.
On November 30, 1998, the Company consummated the SuperGraphics
Acquisition. As a result SuperGraphics became a wholly-owned subsidiary of the
Company. The purchase price included a cash payment of approximately
$15,900,000, the issuance of 135,393 shares of restricted Common Stock of the
Company (approximately $600,000) and the issuance of five-year warrants to
purchase 225,000 shares of the Company's Common Stock at an exercise price of
$5.64 per share. The purchase price also includes a deferred cash payment equal
to the difference between (i) EBITDA, as defined, multiplied by six and (ii)
$16,500,000. Such deferred cash payment, if any, is payable no later than March
15, 1999. In addition, subject to
-8-
<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
certain limitations, the Company granted "piggyback" registration rights to the
sellers of SuperGraphics. Of the purchase price, approximately $233,000 in cash
and 135,393 shares of restricted Common Stock of the Company is being held in
escrow for a period of one year to satisfy any indemnification claims. The
Company funded the cash portion of the purchase price from proceeds of (i) a
portion of a $32,000,000 term loan from CIBC and (ii) the Subordinated Loan.
The warrants issued to the sellers of SuperGraphics, which were deemed to
have a value of approximately $931,000, subject to an independent appraisal,
have been recorded as goodwill, and are being amortized on a straight-line basis
over twenty-five years.
The following supplemental pro forma information is presented as if the
Company had completed the Kwik Acquisition (as hereinafter defined), the Mega
Art Acquisition, the Zazula Acquisition and the SuperGraphics Acquisition as of
September 1, 1998 and 1997, respectively:
Three Months Ended,
-------------------------
November 30,
1998 1997
-------------------------
Net sales...................... $ 19,120,000 $18,695,000
Income from operations......... 1,659,000 2,901,000
Net (loss) income.............. (26,000) 1,656,000
Net income per share-basic..... 0.00 0.36
Net income per share-diluted... 0.00 0.34
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE F - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Facility
Amount Amount Outstanding
November 30, November 30, August 31,
1998 1998 1998
------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit facilities in the United Kingdom; interest at either the bank's overdraft
rate plus 2% or 2.5%, including a temporary facility of approximately
$330,000 commencing September 1, 1998 and renewable in December 1998;
facility amount is approximately (pound)2,500,000 ($4,122,000) $4,122,000 $2,616,000 $2,135,000
Term loan, matures in March 2003; payable in sixteen quarterly installments
ranging from $960,000 to $1,920,000, commencing in June 1999, with a
balloon payment of $8,960,000 in March 2003, plus interest at the Base Rate
or at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3.0% 32,000,000 32,000,000 25,000,000
Revolving line of credit; matures in March 2003, interest at the Base Rate or at
the Eurodollar Rate, as defined, plus an Applicable Margin, as defined,
ranging from 0.75% to 3.0% 15,000,000 13,435,000 8,435,000
Acquisition line of credit; matures in March 2003, payable in eleven quarterly
installments of 5.0% of the outstanding balance in March 2000 commencing in
June 2000 and one installment of 45.0% of the outstanding balance in March
2000, plus interest at the Base Rate or at the Eurodollar Rate, as defined,
plus an Applicable Margin, as defined, ranging from 0.75% to 3.0% 5,000,000 5,000,000
Subordinated loan matures in March 2004; base interest of 12 1/2%; plus 0.25%
the first day after the first anniversary of the Note; plus 0.25% following
the last day of each 90 day period until payment in full 10,000,000 10,000,000
Installment note due seller of Elements (SF); payable in eight quarterly
installments of $11,600, including interest at 6.0% -- 11,000
Installment note due seller of Unison (MA); matures in January 1999, payable in
two annual installments of $75,000 including interest at 8.0% 75,000 75,000
Notes payable for certain equipment, maturing on dates between October, 1998 and
September, 2003, payable in monthly installments of $22,000 until October
1998 and $14,000 thereafter, including interest at 8.54% and 8.4%,
respectively. 562,000 618,000
Treasury loan facility in United Kingdom; matures in July 2001, payable in
monthly installments of $19,000 plus interest of LIBOR, as defined, plus
the Banks Margin of 2.4% 586,000 651,000
Note payable, payable in monthly installments of approximately $1000 including
interest at 14,000 17,000 10.35% 14,000 17,000
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UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
Installment note due seller of Kwik International; matures in April 2001,
payable in thirty-six monthly installments of approximately $21,000
including interest at 5.7% 583,000 646,000
------------------------
64,871,000 37,588,000
Less current portion 5,183,000 3,610,000
------------------------
$59,688,000 $33,978,000
========================
</TABLE>
During the First Quarter of Fiscal 1999 (as hereinafter defined), the
Company amended its existing bank financing facilities with CIBC. As a result,
the Company has credit facilities with CIBC in the aggregate amount of
$52,000,000, consisting of a: (i) $32,000,000 term loan; (ii) $15,000,000
revolving line of credit facility which is available for working capital
purposes; and (iii) $5,000,000 credit facility which is available for corporate
acquisition purposes. Such credit facilities are guaranteed by the Company's
United States subsidiaries, including subsidiaries currently owned and
subsequently acquired. In addition, the Company pledged all of its equity
interests in its United States subsidiaries, including subsidiaries currently
owned and subsequently acquired, and two-thirds of its equity interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit facilities is, at the Company's option, at the Base
Rate or at the Eurodollar Rate, as defined, plus an Applicable Margin, as
defined, ranging from 0.75% to 3.0% depending on the Company's consolidated debt
to earnings ratio and the type of loan. As of November 30, 1998, the Company had
an outstanding balance of $32,000,000 under the term loan, $13,435,000 under the
revolving credit facility and $5,000,000 under the acquisition loan.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The Company's agreement
with CIBC restricts the Company's ability to pay dividends. The credit
facilities are secured by a first priority lien on all of the assets of the
Company and its subsidiaries.
Subsequent to the end of the fiscal year, in November 1998, the Company
borrowed a principal amount of $10,000,000 pursuant to a subordinated unsecured
loan (the "Subordinated Loan"). The Subordinated Loan matures on March 31, 2004
and bears interest at a rate per annum equal to the sum of (i) 12.50% plus (ii)
an additional percentage amount equal to 0.25% commencing on November 30, 1999
and increasing by 0.25% following the last day of each 90-day period thereafter.
Until November 30, 1999, at the option of the lender, interest is payable in
additional notes, Common Stock of the Company or warrants to purchase Common
Stock of the Company. Thereafter, interest is payable in either additional notes
or cash, depending on certain coverage ratios and, in the case of cash interest
payments, the approval of the Bank. The Company will incur an additional premium
of 5.0% on any prepayments of the Subordinated
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<PAGE>
UNIDIGITAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
Loan made prior to November 30, 1999. Such additional premium will be reduced by
100 basis points on December 1, 1999 and shall be reduced by such amount on each
December 1st thereafter until December 1, 2003. In connection with the
Subordinated Loan, the Company issued ten-year warrants to the lender to
purchase 440,000 shares of the Company's Common Stock at an exercise price not
to exceed $5.00 per share. In the event the Company has not paid the loan in
full by November 30, 1999 (subject to extension in certain instances), the
Company will issue ten-year warrants to the lender to purchase an additional
200,000 shares of the Company's Common Stock at an exercise price not to exceed
$5.00 per share. In the event the Subordinated Loan has not been paid in full by
May 31, 2001, the exercise price of such warrants shall be reduced by $1.00 per
share and, on each anniversary of such date, such exercise price shall be
reduced by an additional $1.00 per share. In addition, subject to certain
limitations, the Company granted registration rights, including "demand"
registration rights, to such lender.
The warrants issued to CWGCC, which were deemed to have a value of
approximately $380,000, subject to an independent appraisal, have been recorded
as deferred financing costs, and are being amortized on a straight-line basis
over approximately five years.
The Company's credit facility with its London bank provides for combined
lines of credit of (pound)2,500,000 (approximately $4,122,000) for working
capital for its United Kingdom operations. Such credit facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit renewed annually and bear interest at 2.0% or 2.5% over the bank's Base
Rate, as defined. In addition, the Company is required to pay a service charge
equal to 0.2% of invoice value. These lines of credit contain covenants which
require the Company's United Kingdom subsidiaries to maintain a minimum net
worth of (pound)500,000, limit borrowings up to specified amounts of accounts
receivable aged 120 days or less and are guaranteed by the Company for the
principal amount of up to (pound)500,000. Amounts outstanding are collateralized
by substantially all of the Company's United Kingdom assets. As of November 30,
1998, the Company had an outstanding balance of (pound)1,587,000 (approximately
$2,616,000) under its United Kingdom credit facility.
In connection with its acquisition of certain of the assets (the "Five
Star Acquisition") of Five Star Finishers, Ltd., a United Kingdom corporation
("Five Star"), the Company entered into a three-year term loan of (pound)400,000
(approximately $660,000) with its London bank. Such term loan bears interest at
2.4% over the bank's Base Rate, as defined, and contains covenants which require
the Company to maintain certain debt to earnings ratios and Net Tangible Assets,
as defined, and limits borrowings to 75% of Net Tangible Assets. The Company's
obligations under the term loan are guaranteed by its United Kingdom
subsidiaries. As of November 30, 1998, the Company had an outstanding balance of
(pound)356,000 (approximately $586,000) under the term loan.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company is a leading provider of imaging, reproduction and integrated
media solution services to advertising agencies, retailers, corporations,
marketing/communications firms, publishers, government agencies and financial
institutions in the New York City, Boston, San Francisco and London markets.
Through active cross-selling among the Unidigital Enterprise, the Company
provides imaging, reproductive and integrated media solutions to each of the
large format, digital prepress and digital printing segments of the industry.
Cross-selling among the Unidigital Enterprise offers a total media solution for
customers, which the Company believes, creates a distinct advantage over
competitors within the marketplace.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases or oral statements made by or with the approval of an authorized
executive officer of the Company. These forward-looking statements, such as
statements regarding anticipated future revenues, capital expenditures, Year
2000 compliance and other statements regarding matters that are not historical
facts, involve predictions. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Potential risks and uncertainties that
could affect the Company's future operating results include, but are not limited
to: (i) economic conditions, including economic conditions related to the
digital print industry; (ii) the availability of equipment from the Company's
vendors at current prices and levels; (iii) the intense competition in the
markets for the Company's products and services; (iv) the Company's ability to
integrate acquired companies and businesses in a cost-effective manner; (v) the
Company's ability to effectively implement its branding strategy; and (vi) the
Company's ability to develop, market, provide, and achieve market acceptance of
new service offerings to new and existing clients.
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's United
States operations and its United Kingdom operations. On March 25, 1998 the
Company acquired substantially all of the assets of Kwik International, Ltd.
(the "Kwik Acquisition"). As a result of such acquisition the Company has
expanded its color separation and large format printing services in the New York
and surrounding area. In July 1998, the Company consummated the Five Star
Acquisition in the United Kingdom. On September 2, 1998, the Company consummated
the
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<PAGE>
Mega Art Acquisition resulting in the expansion of its wide format, digital
prepress and printing services. On October 30, 1998, the Company consummated the
Zazula Acquisition resulting in the expansion of its retouching and prepress
services, primarily to advertising agencies. On November 30, 1998, the Company
completed the SuperGraphics Acquisition. Such acquisitions have been accounted
for under the purchase method of accounting and, therefore, results of
operations from such acquisitions are included in the Company's consolidated
financial statements from the date of the respective acquisition.
THREE MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
----------------------------------------------------------
NET SALES. Net sales for the three months ended November 30, 1998 ("First
Quarter of Fiscal 1999") increased by 64%, or $6,227,000, to $15,953,000 from
$9,726,000 for the three months ended November 30, 1997 ("First Quarter of
Fiscal 1998"). Net sales for the Company's United States operations increased by
136%, or $7,101,000, from $5,234,000 in the First Quarter of Fiscal 1998 to
$12,335,000 in the First Quarter of Fiscal 1999. This increase was attributable
primarily to an increase in net sales resulting from the Kwik Acquisition, the
Mega Art Acquisition and, to a lesser extent, the Zazula Acquisition and an
increase in net sales in the Company's other United States subsidiaries. Net
sales for the Company's United Kingdom operations decreased by 19%, or $875,000,
from $4,493,000 in the First Quarter of Fiscal 1998 to $3,618,000 in the First
Quarter of Fiscal 1999. This decrease was attributable primarily to a
market-driven downturn in the financial printing industry in the United Kingdom.
COST OF SALES. Cost of sales for the First Quarter of Fiscal 1999 increased
by 74%, or $3,707,000, to $8,748,000 from $5,041,000 for the First Quarter of
Fiscal 1998. As a percentage of net sales, cost of sales increased as a
percentage of net sales from 52% for the First Quarter of Fiscal 1998 to 55% for
the First Quarter of Fiscal 1999. Such increase was attributable primarily to
the change in product mix to include more large format and digital print
services. Cost of sales for the Company's United States operations increased as
a percentage of net sales from 49% for the First Quarter of Fiscal 1998 to 54%
for the First Quarter of Fiscal 1999. Such increase was attributable primarily
to increased costs incurred in connection with the Company's preparation for
expansion of its large format and digital print businesses. Cost of sales for
the Company's United Kingdom operations increased as a percentage of net sales
from 55% for the First Quarter of Fiscal 1998 to 59% for the First Quarter of
Fiscal 1999. Such increase was attributable primarily to the change in product
mix to include more digital print services as well as the reduced utilization of
the Company's financial printing facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased 58%, or $1,984,000, from $3,420,000
for the First Quarter of Fiscal 1998 to $5,404,000 for the First Quarter of
Fiscal 1999. Such increase was attributable primarily to the increased level of
operations which resulted from the Kwik Acquisition, the Mega Art Acquisition
and, to a lesser extent, the Zazula Acquisition and the hiring of additional
management and administrative personnel and costs associated with the Company's
acquisitions. As a percentage of net sales, SG&A decreased slightly from 35% for
the First Quarter of Fiscal 1998 to 34% for the First Quarter of Fiscal 1999.
SG&A decreased a percentage of net sales as a result of increased sales volume.
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<PAGE>
RESTRUCTURING EXPENSES. In the First Quarter of Fiscal 1999, the Company
continued to consolidate its United Kingdom financial printing operations. As a
result of such consolidation, the Company incurred restructuring expenses of
$198,000.
INCOME FROM OPERATIONS. Income from operations for the First Quarter of
Fiscal 1999 increased by 27%, or $338,000, to $1,603,000 from $1,265,000 for the
First Quarter of Fiscal 1998. Of this amount, $1,474,000 was contributed by the
Company's United States operations and $129,000 by the Company's United Kingdom
operations. This increase resulted from higher net sales offset in part by
higher operating costs associated with such net sales and the restructuring
expenses.
NET INTEREST EXPENSE. Net interest expense for the First Quarter of Fiscal
1999 increased by 98%, or $470,000, to $952,000 from $482,000 for the First
Quarter of Fiscal 1998. This increase resulted from increased borrowings under
the Company's credit facilities primarily relating to the Company's
acquisitions.
INCOME TAXES. Income taxes for the First Quarter of Fiscal 1999 increased
by 1%, or $4,000, to $280,000 from $276,000 for the First Quarter of Fiscal
1998.
NET INCOME. As a result of the factors described above, net income for the
First Quarter of Fiscal 1999 decreased by 27%, or $137,000, to $371,000 as
compared to net income of $508,000 for the First Quarter of Fiscal 1998.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
CASH FLOW. Net cash used in operating activities was $2,004,000 for the
First Quarter of Fiscal 1999 and $1,175,000 for the First Quarter of Fiscal
1998. Net cash used in investing activities for the acquisition of property and
equipment was $396,000 for the First Quarter of Fiscal 1999 and $358,000 for the
First Quarter of Fiscal 1998. For the First Quarter of Fiscal 1999 and the First
Quarter of Fiscal 1998, the Company acquired equipment under capital leases of
$2,032,000 and $261,000, respectively, and made payments under capital leases of
$617,000 and $445,000, respectively. Net bank borrowings provided funds of
$27,339,000 for the First Quarter of Fiscal 1999 and $779,000 for the First
Quarter of Fiscal 1998.
BANK CREDIT FACILITIES. The Company has borrowing arrangements with
commercial banks in both New York and London. During the First Quarter of Fiscal
1999, the Company amended its existing credit facility with CIBC in the
aggregate amount of $52,000,000, which consist of a: (i) $32,000,000 term loan;
(ii) $15,000,000 revolving line of credit facility which is available for
working capital purposes; and (iii) $5,000,000 credit facility which is
available for corporate acquisition purposes. Such borrowings are guaranteed by
the Company's United States subsidiaries, including subsidiaries currently owned
and subsequently acquired. In addition, the Company pledged all of its equity
interests in its United States subsidiaries, including subsidiaries currently
owned and subsequently acquired, and two-thirds of its equity interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit facilities is, at the Company's option, at the Base
Rate or at the Eurodollar
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<PAGE>
Rate, as defined, plus an Applicable Margin, as defined, ranging from 0.75% to
3.0% depending on the Company's consolidated debt to earnings ratio and the type
of loan. As of November 30, 1998, the Company had an outstanding balance of
$32,000,000 under the term loan, and $13,435,000 under the revolving credit
facility and $5,000,000 under the acquisition loan.
The credit facilities contain covenants which require the Company to
maintain certain earnings and debt to earnings ratio requirements based on the
combined operations of the Company and its subsidiaries. The Company's agreement
with CIBC restricts the Company's ability to pay dividends. The credit
facilities are secured by a first priority lien on all of the assets of the
Company and its subsidiaries, including subsidiaries currently owned and
subsequently acquired.
In November 1998, the Company borrowed a principal amount of $10,000,000
pursuant to the Subordinated Loan. The Subordinated Loan matures on March 31,
2004 and bears interest at a rate per annum equal to the sum of (i) 12.50% plus
(ii) an additional percentage amount equal to 0.25% commencing on November 30,
1999 and increasing by 0.25% following the last day of each 90-day period
thereafter. Until November 30, 1999, at the option of the lender, interest is
payable in additional notes, Common Stock of the Company or warrants to purchase
Common Stock of the Company. Thereafter, interest is payable in either
additional notes or cash, depending on certain coverage ratios and, in the case
of cash interest payments, the approval of CIBC. The Company will incur an
additional premium of 5.0% on any prepayments of the Subordinated Loan made
prior to November 30, 1999. Such additional premium will be reduced by 100 basis
points on December 1, 1999 and shall be reduced by such amount on each December
1st thereafter until December 1, 2003. In connection with the Subordinated Loan,
the Company issued ten-year warrants to the lender to purchase 440,000 shares of
the Company's Common Stock at an exercise price not to exceed $5.00 per share.
In the event the Company has not paid the loan in full by November 30, 1999
(subject to extension in certain instances), the Company will issue ten-year
warrants to the lender to purchase an additional 200,000 shares of the Company's
Common Stock at an exercise price not to exceed $5.00 per share. In the event
the Subordinated Loan has not been paid in full by May 31, 2001, the exercise
price of such warrants shall be reduced by $1.00 per share and, on each
anniversary of such date, such exercise price shall be reduced by an additional
$1.00 per share. In addition, subject to certain limitations, the Company
granted registration rights, including "demand" registration rights, to such
lender.
The warrants issued to CWGCC, which were deemed to have a value of
approximately $380,000, subject to an independent appraisal, have been recorded
as deferred financing costs, and are being amortized on a straight-line basis
over approximately five years.
The Company's credit facility with its London bank provides for combined
lines of credit of (pound)2,500,000 (approximately $4,122,000) for working
capital for its United Kingdom operations. Such credit facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit renew annually and bear interest at 2.0% or 2.5% over the bank's Base
Rate, as defined. In addition, the Company is required to pay a service charge
equal to 0.2% of invoice value. These lines of credit contain covenants which
require the Company's United Kingdom subsidiaries to maintain a minimum net
worth of (pound)500,000, limit borrowings up to specified amounts of accounts
receivable aged 120 days or less and are guaranteed by the Company for the
principal amount of up to (pound)500,000. Amounts outstanding are collateralized
by substantially all of the Company's United Kingdom assets. As of November 30,
1998, the
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<PAGE>
Company had an outstanding balance of (pound)1,587,000 (approximately
$2,616,000) under its United Kingdom credit facility.
In connection with the Five Star Acquisition, the Company entered into a
three-year term loan of (pound)400,000 (approximately $660,000) with its London
bank. Such term loan bears interest at 2.4% over the bank's Base Rate, as
defined, and contains covenants which require the Company to maintain certain
debt to earnings ratios and Net Tangible Assets, as defined, and limits
borrowings to 75% of Net Tangible Assets. The Company's obligations under the
term loan are guaranteed by its United Kingdom subsidiaries. As of November 30,
1998, the Company had an outstanding balance of (pound)356,000 (approximately
$586,000) under the term loan.
As of November 30, 1998, the Company was in compliance under its credit
facilities.
The Company expects that cash flow from operations will be sufficient to
fund its capital lease obligations, debt service payments, potential earn-outs,
capital expenditures and operations for at least 12 months. The Company may
require additional financing to consummate future acquisitions or to repay its
bank loans. There can be no assurance that the Company will be able to secure
such additional financing on terms favorable to the Company.
WORKING CAPITAL. The Company's working capital increased by $3,117,000 from
$8,897,000 at August 31, 1997 to $12,014,000 at November 30, 1998.
ACQUISITIONS. In September 1998, the Company consummated the Mega Art
Acquisition. As a result, Mega Art became a wholly-owned subsidiary of the
Company. The purchase price included an initial cash payment of $5,800,000 and
the issuance of 754,148 shares of restricted Common Stock of the Company
($5,000,000). In addition, the purchase price includes the Deferred Cash
Payment, payable 180 calendar days after the closing date, and the Earn-Out
Payment, payable on or before November 29, 1999. Each of the Deferred Payment
and the Earn-Out Payment are subject to adjustment based on the financial
performance of Mega Art. In addition, the Deferred Payment and the Earn-Out
Payment may also be used to satisfy any indemnification claims. The Company
funded the cash portion of the purchase price from proceeds of a $5,000,000
acquisition loan and a portion of a $10,000,000 revolving credit loan from CIBC.
In October 1998, the Company consummated the Zazula Acquisition. The
purchase price included an aggregate cash payment of $2,275,000 and the issuance
of 433,076 shares of restricted Common Stock of the Company ($2,275,000). Of the
purchase price, $150,000 in cash and 28,552 shares of restricted Common Stock of
the Company is being held in escrow for a period of two years to satisfy any
indemnification claims. The Company funded the cash portion of the purchase
price from proceeds of a portion of a $15,000,000 revolving credit loan from
CIBC.
In November 1998, the Company consummated the SuperGraphics Acquisition.
The purchase price included a cash payment of approximately $15,900,000, the
issuance of 135,393
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<PAGE>
shares of restricted Common Stock of the Company (approximately $600,000) and
the issuance of five-year warrants to purchase 225,000 shares of the Company's
Common Stock at an exercise price of $5.64 per share. The purchase price also
includes a deferred cash payment equal to the difference between (i) EBITDA, as
defined, multiplied by six and (ii) $16,500,000. Such deferred cash payment, if
any, is payable no later than March 15, 1999. In addition, subject to certain
limitations, the Company granted "piggyback" registration rights to the sellers
of SuperGraphics. Of the purchase price, approximately $233,000 in cash and
135,393 shares of restricted Common Stock of the Company is being held in escrow
for a period of one year to satisfy any indemnification claims. The Company
funded the cash portion of the purchase price from proceeds of (i) a portion of
a $32,000,000 term loan from CIBC and (ii) the Subordinated Loan.
The warrants issued to the sellers of SuperGraphics, which were deemed to
have a value of approximately $931,000, subject to an independent appraisal,
have been recorded as goodwill, and are being amortized on a straight-line basis
over twenty-five years.
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 the 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 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 practicable for it to do so at a reasonable cost.
YEAR 2000 COMPLIANCE
The Company believes that it has sufficiently assessed its state of
readiness with respect to its Year 2000 compliance. The Company has developed or
is developing a program to address on a timely basis the risk that computer
applications developed, marketed, sold and delivered or used by the Company may
be unable to recognize and properly perform date-sensitive functions involving
dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The
Company does not believe that Year 2000 compliance will result in material
investments by the Company, nor does the Company anticipate that the Year 2000
Problem will have any adverse effects on the business operations or financial
performance of the Company. The Company does not believe that it has any
material exposure to the Year 2000 Problem with respect to its own information
systems. There can be no assurance, however, that the Year 2000 Problem will not
adversely affect the Company's business, operating results and financial
condition.
The Company believes that each of its products is Year 2000 compliant,
however, it has no control over whether software modification made by third
parties or the combination of its products with the software developed by third
parties and combined with the Company's products will be Year 2000 compliant.
Additionally, there can be no assurance that such potential instances of
non-compliance will not adversely affect the Company's business,
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<PAGE>
operating results and financial condition. The Company has established no
reserve for auditing its software products or for correcting Year 2000
compliance issues with such products.
Although the Company believes its products are Year 2000 compliant, the
purchasing patterns of customers and potential customers may be affected by
issues associated with the Year 2000 Problem. As companies expend significant
resources to correct their current data storage solutions, these expenditures
may result in reduced funds to purchase products as those offered by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the Company's business, operating results and financial condition.
Conversely, the Year 2000 Problem may cause other companies to accelerate
purchases, thereby causing an increase in short-term demand and a consequent
decrease in long-term demand for the Company's products.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 2, 1998, the Company issued 754,148 shares of restricted
Common Stock of the Company (with an aggregate value $5,000,000) to Ehud Aloni
in partial consideration for the Mega Art Acquisition.
On October 30, 1998 the Company issued 433,076 of restricted Common Stock
of the Company (with an aggregate value of $2,275,000) to the shareholders of
Zazula in partial consideration for the Zazula Acquisition.
On November 25, 1998, in connection with the Subordinated Loan, the Company
issued ten-year warrants to CWGCC to purchase 440,000 shares of the Company's
Common Stock at an exercise price of $4.50 per share.
On November 30, 1998, the Company issued 135,393 shares of restricted
Common Stock of the Company (with an approximate aggregate value of $611,000)
and five-year warrants to purchase 225,000 shares of the Company's Common Stock
at an exercise price of $5.64 per share, in partial consideration of the
SuperGraphics Acquisition.
No underwriter was employed by the Company in connection with the issuances
and sales of the securities described above. The Company believes that the
issuances and sales of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the shares issued to the employee, Rule 701 under the Act as a
transaction made pursuant to a written compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate legends have been affixed to the stock certificates issued to Mr.
Aloni and those issued in connection with the Zazula Acquisition and the
SuperGraphics Acquisition. In addition, appropriate legends will be affixed to
the stock certificates issued upon the respective exercise of the warrants
issued to CWGCC and the shareholders of SuperGraphics. All recipients had
adequate access to information about the Company.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Stockholders' Agreement dated as of September 2,
1998 by and between Unidigital Inc. and Ehud Aloni
(included as Exhibit 4.1 to the Current Report on
Form 8-K of the Company dated September 14, 1998
and incorporated by reference herein.)
4.2 Form of Warrant Agreement issued to the
stockholders of SuperGraphics Holding Company,
Inc. (included as Exhibit 4.1 to the Current
Report on Form 8-K of the Company dated December
14, 1998 and incorporated by reference herein.)
4.3 Warrant Agreement dated as of November 25, 1998 by
and between Unidigital Inc. and CIBC Wood Gundy
Capital Corp. (included as Exhibit 4.2 to the
Current Report on Form 8-K of the Company dated
December 14, 1998 and incorporated by reference
herein.)
4.4 Registration and Equity Rights Agreement by and
between Unidigital Inc. and CIBC Wood Gundy
Capital Corp. (included as Exhibit 4.3 to the
Current Report on Form 8-K of the Company dated
December 14, 1998 and incorporated by reference
herein.)
10.1 Agreement of Purchase and Sale dated as of August
3, 1998 by and among Unidigital Inc., Mega Art
Corp., Ehud Aloni, Amit Primor, Jeffrey E. Rothman
and Seligson, Rothman & Rothman (included as Exhibit
10.1 to the Current Report on Form 8-K of the
Company dated September 14, 1998 and incorporated by
reference herein.)
10.2 Agreement and Plan of Merger dated as of October
30, 1998 by and among Unidigital Inc.,
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<PAGE>
Unison (NY), Inc., Hy Zazula Associates, Inc.,
Hyman Zazula, Steven Zazula, David Zazula and Gary
Feigenbaum (included as Exhibit 10.1 to the Current
Report on Form 8-K of the Company dated November
16, 1998 and incorporated by reference herein.)
10.3 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 Exhibit 10.1 to the Current
Report on Form 8-K of the Company dated December 14,
1998 and incorporated by reference herein.)
10.4 Employment Agreement dated as of September 2, 1998
by and between Mega Art Corp. and Ehud Aloni
(included as Exhibit 10.2 to the Current Report on
Form 8-K of the Company dated September 14, 1998
and incorporated by reference herein.)
10.5 Amendment No. 2 to Credit Agreement dated as of
October 30, 1998 by and among Unidigital Inc., the
several lenders from time to time parties thereto
and Canadian Imperial Bank of Commerce (included
as Exhibit 10.2 to the Current Report on Form 8-K
of the Company dated November 16, 1998 and
incorporated by reference herein.)
10.6 Amendment to Security Agreement dated as of
October 30, 1998 made by Unidigital Inc. in favor
of Canadian Imperial Bank of Commerce (included as
Exhibit 10.3 to the Current Report on Form 8-K of
the Company dated November 16, 1998 and
incorporated by reference herein.)
10.7 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
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<PAGE>
Bank of Commerce (included as Exhibit 10.2 to the
Current Report on Form 8-K of the Company dated
December 16, 1998 and incorporated by reference
herein.)
10.8 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 Exhibit 10.3 to the
Current Report on Form 8-K of the Company dated
December 16, 1998 and incorporated by reference
herein.)
10.9 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 Exhibit 10.4 to
the Current Report on Form 8-K of the Company
dated December 16, 1998 and incorporated by
reference herein.)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
On April 8, 1998, the Company filed a Current Report on Form 8-K with
the SEC relating to the Kwik Acquisition. Such Form 8-K also disclosed
the terms of certain loans made to the Company, the proceeds of which
the Company used to fund the purchase price of the Kwik Acquisition.
On June 8, 1998, the Company filed a Current Report on Form 8-K/A
containing required financial statements and pro forma financial
information relating to the Kwik Acquisition disclosed in its Current
Report on Form 8-K filed on April 8, 1998.
On September 14, 1998, the Company filed a Current Report on Form 8-K
with the SEC relating to the Mega Art Acquisition. Such Form 8-K also
disclosed the terms of certain loans made to the Company, the proceeds
of which the Company used to fund the purchase price of the Mega Art
Acquisition.
On November 16, 1998, the Company filed a Current Report on Form 8-K/A
with the SEC relating to the Mega Art Acquisition containing financial
statements and pro forma financial information relating to the Mega
Art Acquisition disclosed in its Current Report on Form 8-K filed on
September 14, 1998.
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<PAGE>
On November 16, 1998, the Company filed a Current Report on Form 8-K
relating to the Zazula Acquisition. Such Form 8-K also disclosed the
terms of certain loans made to the Company, the proceeds of which the
Company used to fund the purchase price of the Zazula Acquisition.
On December 14, 1998, the Company filed a Current Report on Form 8-K
relating to the SuperGraphics Acquisition. Such Form 8-K also
disclosed the terms of certain loans made to the Company, the proceeds
of which the Company used to fund the purchase price of the
SuperGraphics Acquisition.
On December 17, 1998, the Company filed a Current Report on Form
8-K/A2 with the SEC relating the Mega Art Acquisition containing
amended pro forma financial information relating to the Mega Art
Acquisition disclosed in its Current Report on Form 8-K filed on
September 14, 1998 and Current Report on Form 8-K/A filed on November
16, 1998.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDIGITAL INC.
DATE: January 19, 1999 By: /s/ William E. Dye
--------------------------------
William E. Dye, Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements at November 30, 1998 and is
qualified in its entirety by reference to such financial statements. Earnings
per share information has been presented to conform with the requirements of
SFAS No. 128, Earnings Per Share.
</LEGEND>
<CIK> 0001003934
<NAME> Unidigital Inc.
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<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Sep-01-1998
<PERIOD-END> Nov-30-1998
<EXCHANGE-RATE> 1
<CASH> 886,149
<SECURITIES> 0
<RECEIVABLES> 23,344,241
<ALLOWANCES> (648,794)
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<TOTAL-ASSETS> 109,730,173
<CURRENT-LIABILITIES> 20,691,205
<BONDS> 0
0
0
<COMMON> 52,472
<OTHER-SE> 23,917,380
<TOTAL-LIABILITY-AND-EQUITY> 109,730,173
<SALES> 15,953,540
<TOTAL-REVENUES> 15,953,540
<CGS> 8,748,210
<TOTAL-COSTS> 8,748,210
<OTHER-EXPENSES> 5,601,687
<LOSS-PROVISION> 53,491
<INTEREST-EXPENSE> 1,223,378
<INCOME-PRETAX> 651,420
<INCOME-TAX> 280,142
<INCOME-CONTINUING> 371,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371,278
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
<FN>
<F1> Represents basic earnings per share in accordance with SAFAS No. 128,
Earnings Per Share.
<F2> Represents diluted earnings per share in accordance with SFAS No. 128,
Earnings Per Share.
</FN>
</TABLE>
