<PAGE> 1
As filed with the Securities and Exchange Commission on July 22, 1998
Registration No. 333-46115
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 4
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PERFORMANCE PRINTING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 2799 75-2418082
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
3012 Fairmount
Dallas, Texas 75201
(214) 665-1000
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices and principal place of business)
John T. White
President
PERFORMANCE PRINTING CORPORATION
3012 Fairmount
Dallas, Texas 75201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies To:
Garza & Staples, P.C. Crouch & Hallett, L.L.P.
1230 Lincoln Center Two 717 North Harwood, Suite 1400
Dallas, Texas 75240 Dallas, Texas 75201
Attn: Joe B. Garza Attn: Susan Henderson
(800) 442-7040 (214) 953-0053
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed
Proposed maximum
maximum aggregate
Title of each class of securities to be Amount to be offering price offering Amount of
registered(1) registered per share(1) price(1) registration fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units(2) 1,380,000 $ 5.125 $ 7,072,500 $2,144
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(3) 1,380,000 (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants(3)(9) 1,380,000 (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, issuable under Common Stock
Purchase Warrants(4)(9) 1,380,000 $ 7.50 $10,350,000 $3,137
- ----------------------------------------------------------------------------------------------------------------------
Representatives' Warrants(5)(9) 120,000 $.0009 $ 100 $ .04
- ----------------------------------------------------------------------------------------------------------------------
Units underlying Representatives' Warrants 120,000 $ 6.15 $ 738,000 $ 224
- ----------------------------------------------------------------------------------------------------------------------
Common Stock included in Representatives'
Units(6) 120,000 (6) (6) (6)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants included in
Representatives' Warrants(7) 120,000 (7) (7) (7)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Common
Stock Purchase Warrants Underlying the
Representatives' Units(8) 120,000 $ 7.50 $ 900,000 $ 272
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $5,777
======================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 180,000 Shares of Common Stock and 180,000 Warrants issuable
pursuant to the Representatives' over-allotment option.
(3) Included in the Units. No additional registration fee is required.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants
registered hereby together with such additional indeterminate number of
shares as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(5) Representatives' Warrants to purchase up to 120,000 Units consisting of an
aggregate of 120,000 shares of Common Stock and 120,000 Warrants.
(6) Represents shares of common stock issuable upon exercise of the
Representatives' Warrant, together with such additional indeterminate
number of shares of Common Stock as may be issued upon exercise of such
Representatives' Warrant by reason of the anti-dilution provisions
contained therein.
(7) Representatives' Warrants to purchase up to 120,000 Common Stock Purchase
Warrants.
(8) Issuable upon exercise of Common Stock Purchase Warrants underlying the
Representatives' Units.
(9) Pursuant to Rule 416 of the Securities Act of 1933, no separate
registration fee is required because the Common Stock underlying the Common
Stock Purchase Warrants is being registered in the same registration
statement.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
================================================================================
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 22, 1998
PERFORMANCE PRINTING CORPORATION
1,200,000 UNITS
Each Unit Consisting of One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
Performance Printing Corporation (the "Company" or "Performance Printing")
is offering 1,200,000 units (the "Units"), each Unit consisting of one share
(the "Shares") of Common Stock, $.01 par value per share (the "Common Stock"),
and one Redeemable Common Stock Purchase Warrant (the "Warrants"). The Units,
the Shares and the Warrants offered hereby are referred to collectively as the
"Securities." The Shares and Warrants included in the Units may be not be traded
separately until ________, 1999 (180 days from the date of this Prospectus)
unless earlier separated upon three days notice from First London Securities
Corporation and Nutmeg Securities, Ltd. (the "Representatives") to the Company.
The Warrants may not be exercised until they are separated from the Units. Prior
to this Offering, there has been no public market for the Common Stock and the
Warrants. It is estimated that the initial public offering price will be $5.125
per Unit.
Each Warrant entitles the holder to purchase one share of Common Stock at
a price of $7.50 per share. The Warrants may be exercised at any time after
separation from the Units until the close of business five years from the date
hereof. The Warrants are redeemable by the Company for $.15 per Warrant on not
less than 30 nor more than 60 days written notice if the closing price for the
Common Stock for seven trading days during any 10 consecutive trading day period
ending not more than 15 days prior to the date that the notice of redemption is
mailed equals or exceeds $10.00 per share, subject to adjustment under certain
circumstances and provided there is then a current effective registration
statement under the Securities Act of 1933, as amended (the "Act"), with respect
to the issuance and sale of the Common Stock upon the exercise of the Warrants.
Any redemption of the Warrants during the one-year period commencing on the date
of this Prospectus shall require the written consent of the Representatives.
See "Description of Securities."
Prior to this Offering, there has been no public market for the Units,
Common Stock or the Warrants. The initial public offering price of the Units and
the exercise price and other terms of the Warrants have been determined through
negotiations between the Company and the Representatives and are not related to
the Company's assets, book value, financial condition or other recognized
criteria of value. Although the Company has applied for the listing of the
Units, Common Stock and the Warrants on the Boston Stock Exchange under the
symbols "PPC/U," "PPC" and "PPC&W," respectively, and inclusion on the Nasdaq
SmallCap Market under the symbols "INKSU," "INKS" and "INKSW," respectively,
there can be no assurance that an active trading market in the Company's
securities will develop or be sustained.
------------------
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY INVESTORS
WHOCAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" ON PAGES 11 THROUGH 16 AND "DILUTION."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit ...................... $ $ $
- -------------------------------------------------------------------------------------------
Total(3)....................... $ $ $
===========================================================================================
</TABLE>
*SEE FOOTNOTES ON FOLLOWING PAGE
The Securities are offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates for the shares of Common Stock
will be made on or about , 1998.
FIRST LONDON SECURITIES CORPORATION
NUTMEG SECURITIES, LTD.
The date of this Prospectus is , 1998
<PAGE> 4
{Description of pictures and text on gatefold inside of the front cover of the
prospectus}
Page 1 of the gatefold:
Picture #1: Machinery and operator of the machinery.
Picture #2: Machinery and operator of the machinery.
Picture #3: Machinery and operator of the machinery.
Picture #4: Drawing of a toy top.
Text:
A Top
Performer
in P-O-P
Performance is a single-source supplier of P-O-P and promotional marketing
materials. We offer experience, knowledge and special capabilities in the
areas of offset and screen printing, display packaging and P-O-P displays.
Pages 2 & 3 of the gatefold:
Picture #1: Machinery.
Picture #2: Building.
Picture #3: Machinery and operator of the machinery.
Picture #4: Products manufactured by the Company.
Picture #5: Products manufactured by the Company.
Picture #6: Products manufactured by the Company.
Picture #7: Products manufactured by the Company.
Picture #8: Products manufactured by the Company.
Picture #9: Products manufactured by the Company.
Text:
There are many quality printers in America and we, at Performance Printing
Corporation, have separated ourselves from the crowd by offering our
customers a wide range of capabilities and services. Our special
capabilities are in the areas of screen printing, point-of-purchase
displays and display packaging. Performance's services include design and
electronic prepress, both UV and conventional sheetfed offset printing,
large-format screen printing, off-line specialty coating, plastic forming,
a wide range of finishing services, kitting and fulfillment.
We at Performance have the people and the expertise to take jobs from start
to finish. We give customers more than promises. We give them Performance.
Performance Printing Corporation, is a single-source supplier of
point-of-purchase and other promotional materials on both paper and
plastics.
P-O-P Displays
Display Header signs
Shelf Strips
Self Wobblers
Floor Graphics
Static Cling Decals
Pressure-sensitive Decals
Translites Trading Cards
Product Trays
Pole Toppers
Posters
Counter cards
Table Tents
Box Labels
Display Packaging
Mouse Pads
Counter Mats
Proportion Wheels
Book Marks
<PAGE> 5
(1) Does not include additional underwriting compensation to be received by the
Representatives in the form of (i) a non-accountable expense allowance
equal to 2% of the gross proceeds of this Offering, of which $50,000 has
been paid to date, and (ii) a warrant issued to the Representatives for
nominal consideration (the "Representatives' Warrant") to purchase up to
120,000 Shares and up to 120,000 Warrants exercisable for a four-year
period commencing one year from the date hereof at an exercise price equal
to $6.00 per Share and $0.15 per Warrant, subject to adjustment. In
addition, the Company has granted to the Representatives certain
registration rights with respect to registration of the Common Stock, the
Warrants and the shares of Common Stock issuable upon exercise of the
Warrants. The Company has agreed to pay the Representatives upon the
exercise or redemption of the Warrants a fee equal to 5% of the gross
proceeds received by the Company from the exercise of the Warrants and 5%
of the aggregate redemption price for the Warrants redeemed. The
Representatives or their designees must be designated by the Warrant holder
as having solicited the Warrant in order to receive the fee. The Company
has agreed to indemnify the Underwriters against certain liabilities
arising under the Act.
(2) Before deducting expenses payable by the Company estimated at $500,000
including the Representatives' non-accountable expense allowance.
(3) The Company has granted the Representatives an option (the
"Representatives' Over-allotment Option"), exercisable within 30 days from
the date of this Prospectus, to purchase on the same terms as the
Securities offered hereby up to 180,000 additional Units solely to cover
over-allotments, if any. If the Representatives' Over-allotment Option is
exercised in full, the total Price to Public, Underwriting Commissions, and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. THE STATEMENTS CONTAINED IN
THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT IDENTIFIED
AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY COMPLETE, AND IN EACH
INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR DOCUMENT FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING QUALIFIED IN ANY AND
ALL RESPECTS BY SUCH REFERENCE. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and exhibits which may be inspected without charge at the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
New York Regional Office, Room 1300, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at prescribed rates. The Company's Registration Statement on Form
SB-2 as well as any reports to be filed under the Exchange Act can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission Electronic Data Gathering, Analysis And Retrieval ("EDGAR") program,
Knight-Ridder Information, Inc., Federal Filings/Dow Jones and Lexis/Nexis.
Additionally, the Commission maintains a Website (at http://www.sec.gov) that
contains such information regarding the Company. In addition, such material may
also be inspected and copied at the offices of the Boston Stock Exchange, Inc.,
One Boston Place, Boston, Massachusetts.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, (i) all information in this Prospectus assumes no exercise
of the Warrants, the Representatives' Over-allotment Option and the
Representatives' Warrant; (ii) all information in this Prospectus assumes a
public offering price of $5.125 per Unit ($5.00 per share of Common Stock and
$.125 per Warrant); and (iii) all share and per share data have been adjusted to
give effect to a 440 for one stock split in April, 1998.
THE COMPANY
Performance Printing is a specialty printing and display manufacturing
company that is a single-source supplier of point-of-purchase and promotional
marketing materials operating two plants in Dallas, Texas. The Company also
offers unique capabilities in the areas of offset and screen printing,
point-of-purchase displays and display packaging.
The Company's business has been built around a core specialty of
printing with inks and coatings which are cured with ultra violet light ("UV").
This UV printing technology enables the Company to print on Substrates other
than paper, such as vinyl, styrene and polyethelene terephtalate-glycol
("PETG"). Services provided by the Company include design and electronic
pre-press services, both UV and Conventional Sheetfed Offset Printing,
Large-Format Screen Printing, Large-Format Digital Printing, Off-Line Specialty
Coating, Plastic Forming, a wide range of finishing services and direct
shipments of finished point-of-purchase advertising kits to retail stores. The
foregoing capitalized terms, commonly used in the printing industry, are defined
in the Glossary on Page 44 below.
From 1987 to 1995, the Company sustained revenue growth of 24% per
annum. For the fiscal year ended December 31, 1997, the Company recorded
revenues of $20,114,549 and net income of $551,465 compared to the fiscal year
ended December 31, 1996 revenues of $15,715,395 and net income of $213,360, a
28% increase in revenues and a 158% increase in net income. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
The Company has the capabilities to develop concepts and design
prototypes of point-of-purchase displays and also to create graphic design for
commercial printing and display packaging customers. These concept-to-completion
services are instrumental in attracting and retaining the graphic arts customer.
Historically, the Company has grown and profited by increasing its capacity and
adding services complimentary to its existing specialties, such as
point-of-purchase display services.
The Company has a two-point growth strategy that is based upon internal
expansion and acquisitions. Internal expansion focuses on building the Company's
existing business and adding new specialties and related services when
appropriate. The acquisition strategy is to acquire small commercial printers
and screen printers in several key markets around the United States and convert
these plants to shops similar to its Dallas operations. The sales force at each
plant would be trained to sell point-of-purchase advertising and related
materials. Jobs requiring the use of the multi-million dollar presses such as
the Company's equipment in Dallas would be transferred to Dallas for production.
The regional plants would facilitate the development of close relationships with
major users of point-of-purchase advertising and related materials, with primary
emphasis on sales, pre-press and short run work in the regional plants.
The Company was founded in 1981 and incorporated in 1992 as a Texas
corporation. The Company will convert from "S" Corporation status to "C"
Corporation status prior to the consummation of the Offering. It currently has
over 160 employees. The Company's offices are located at 3012 Fairmont, Dallas,
Texas 75201, and its telephone number is (214) 665-1000.
6
<PAGE> 7
THE OFFERING
Securities Offered.................. 1,200,000 Units, each Unit consisting
of one share of Common Stock and one
Warrant, each Warrant entitling the
holder to purchase one share of Common
Stock at $7.50 per share until ,
2003 (5 years from the date of this
Prospectus). See "Description of
Securities."
Description of the
Warrants............................ The Warrants are not immediately
exercisable and are not transferable
separately from the Shares until ,
1999 (180 days from the date of this
Prospectus) unless earlier separated on
three days notice from the
Representatives to the Company. See
"Description of Securities."
Common Stock Outstanding:
Before the Offering........ 4,400,000 Shares
After the Offering......... 5,600,000 Shares (1)(2)
Warrants Outstanding:
Before the Offering........ None
After the Offering......... 1,200,000 (3)
Estimated Net Proceeds.............. $5.0 million (4)
Use of Proceeds..................... Repay outstanding indebtedness and
provide additional working capital. See
"Use of Proceeds."
Risk Factors........................ The Securities offered hereby are
speculative and involve a high degree
of risk. Investors should carefully
consider the risk factors enumerated
hereafter before investing in the
Securities. See "Risk Factors" and
"Dilution."
Proposed Trading Symbols (5):
Boston Stock Exchange:
Units...................... PPC/U
Common Stock............... PPC
Warrant.................... PPC&W
Nasdaq SmallCap Market:
Units...................... INKSU
Common Stock............... INKS
Warrants................... INKSW
- ---------------------------
(1) Does not include 300,000 shares of Common Stock reserved for issuance under
the Company's stock option plan (the "Stock Option Plan"). No shares have
been granted under the Stock Option Plan as of the date of this Prospectus.
See "Management-Stock Option Plan."
(2) Does not include (i) up to 180,000 shares issuable pursuant to the
Representatives' Over-allotment Option, (ii) 1,200,000 shares of Common
Stock issuable upon the exercise of the Warrants offered hereby and (iii)
240,000 shares of Common Stock issuable upon the exercise of the
Representatives' Warrant and the Warrants included therein.
7
<PAGE> 8
(3) Does not include (i) up to 180,000 Warrants issuable pursuant to the
Representatives' Over-allotment Option and (ii) the Representatives'
Warrant and the 120,000 Warrants included therein.
(4) After deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, including a 2% non-accountable
expense allowance payable to the Representatives.
(5) Boston Stock Exchange and the Nasdaq SmallCap Market symbols do not imply
that an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factors-Possible Applicability of Rules Relating to Low-Priced Stock;
Possible Failure to Qualify for Boston Stock Exchange or Nasdaq SmallCap
Market Listing."
8
<PAGE> 9
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
the financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The data for the years ended December 31, 1997 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus. The data for the three months ended March 31, 1998 and 1997 are
derived from unaudited financial statements that are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA: 1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 4,629,824 $ 3,939,448 $ 20,114,549 $ 15,715,395
Costs of goods sold 3,694,190 3,058,955 15,466,484 12,101,986
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative expenses 752,731 720,056 3,269,575 2,872,913
Income from operations 110,903 89,937 984,375 518,174
Other expense, net (27,780) (93,754) (432,910) (346,564)
Pre-tax income (loss) 83,123 (3,817) 551,465 213,360
============ ============ ============ ============
Income tax provision (1) (29,554) -- (189,638) (81,354)
Net income (loss) (1) $ 53,569 $ (3,817) $ 361,827 $ 132,006
============ ============ ============ ============
PRO FORMA EARNINGS PER SHARE (1):
Basic and diluted $ 0.01 $ 0.00 $ 0.08 $ 0.03
Weighted average outstanding shares 4,400,000 4,400,000 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 413,930 $ 336,995 $ 1,884,060 $ 1,629,012
Net cash provided by (used in) operating
activities (27,016) 508,065 568,543 485,755
============ ============ ============ ============
Net cash provided by (used in) investing
activities (124,104) 173,422 656,081 236,506
============ ============ ============ ============
Net cash provided by (used in) financing
activities (573,943) (1,413,213) (1,270,200) 85,816
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------
Actual As Adjusted (3)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ (269,506) $4,268,526
========== ==========
Total assets 9,698,195 12,140,000
========== ==========
Long-term debt and capitalized lease
obligations, less current portion 2,973,938 2,735,066
========== ==========
Shareholders' equity $1,069,431 $5,846,335
========== ==========
</TABLE>
- ---------------
(1) Adjusted to reflect the conversion from "S" Corporation status to "C"
Corporation status prior to the Offering.
(2) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating income in accordance with generally accepted
accounting principles. EBITDA is presented because management believes that
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness, maintain current operating levels of
fixed assets and acquire additional operations and businesses. Accordingly,
significant uses of EBITDA include, but
9
<PAGE> 10
are not limited to, interest and principal payments on long-term debt,
including indebtedness under the Company's revolving credit agreement.
Items excluded from EBITDA, such as interest, taxes, depreciation and
amortization, are significant components of the Company's operations and
should be considered in evaluating the Company's financial performance.
(3) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of March 31, 1998 and reflects the issuance of the
Securities offered by the Company hereby and the application by the Company
of the net proceeds therefrom. See "Use of Proceeds."
10
<PAGE> 11
RISK FACTORS
Prospective investors should carefully review the following risk
factors together with the other information in this Prospectus in evaluating the
Company and its business prior to purchasing the Securities offered by this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. Actual results could differ from those discussed in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in the Prospectus.
PRINTING BUSINESS DEPENDENT ON INDIVIDUAL ORDERS AND NOT ON LONG-TERM CONTRACTS
The Company's business is characterized by individual orders from
customers for specific printing projects rather than long-term contracts, with
continued engagement for successive jobs dependent upon the customer's needs and
its satisfaction with the services provided. The Company has equipped its plants
to meet expected increases in demand over the next few years. The profitability
of the Company is dependent in part on the continued growth in revenues, and the
Company has no binding commitments from its customers to assure that the
revenues of the Company will be sufficient to cover its fixed costs in the
future.
Since many of the services rendered by the Company relate to large
projects for customers, sales to particular customers may vary significantly
from year to year depending on the number and the size of projects required.
During 1997, five customers together represented more than 34% of the Company's
sales. Although one customer (Pinnacle) accounted for 12.5% of sales in 1997,
Pinnacle accounted for less than 2% of sales in 1996 and is expected to account
for less than 2% of sales in 1998. The partial loss of Pinnacle as a customer
because it is experiencing financial difficulties will not have a material
adverse effect on the Company. See "Business - Affiliated Companies."
The Company had 306 customers in 1997 with an average of approximately
$65,700 of sales per customer. The Company has no printing contracts with any of
its customers, and though it believes that its relations with its customers are
good, the loss of business from a significant customer could have a material
adverse effect on the results of operations, financial condition and cash flows
of the Company.
FLUCTUATIONS IN REVENUES
Because the Company has no long-term contracts with its customers, the
Company is unable to predict the number, size and profitability of printing jobs
in a given period. Consequently, the timing of projects in any quarter could
have a significant impact on the financial results in that quarter. Quarterly
results in the future may be influenced by these or other factors and,
accordingly, there may be significant variations in the Company's quarterly
operating results.
HISTORY OF WORKING CAPITAL SHORTAGES
In each of 1992 and 1996, the Company was unable to fund its working
capital needs through cash flow from operations and third party financing
sources. As a result, the Company borrowed an aggregate of $410,000 and $350,000
from its shareholders in 1992 and 1996, respectively, to meet its working
capital needs. There can be no assurance in the future that the Company will be
able to fund its working capital requirements through cash flow from operations,
from third party financing sources or from loans from its shareholders. See "Use
of Proceeds" and "Certain Transactions."
OWNERSHIP OF PERFORMANCE PACKAGING
The Company owns 51% of Performance Packaging, L.C. ("Performance
Packaging"). Pinnacle owns the remaining 49% and as the principal customer of
Performance Packaging, accounted for 96.4% of Performance Packaging's sales in
the fiscal year ended December 31, 1997. Under the terms of the First Renewal of
the Packaging Services Agreement dated April 1, 1997 (the "Packaging
Agreement"), Pinnacle has first call on 100% of the packaging capacity of
Performance Packaging in exchange for certain fixed cost payments. Pinnacle has
legal control of Performance Packaging, although the Company currently manages
its operations. Although
11
<PAGE> 12
the Company expects Performance Packaging to cease operations, the Company does
not believe that this event will have a material adverse effect on 1998 and
future sales and income. See "Business-Affiliated Companies."
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience
and performance of certain key members of its management, including particularly
John T. White, the Company's Chief Executive Officer and W. Chris Pumpelly, its
Chairman. The loss of the services of either of these key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not maintain key-man insurance on the
lives of Messrs. White and Pumpelly, but carries life insurance on such persons
as required by the terms of a loan guaranteed by the Small Business
Administration on a building owned by the Company. There are no employment
agreements between the Company and any of the executive officers. The Company's
future success and plans for growth also depend on its ability to attract, train
and retain skilled personnel in all areas of its business. See "Management."
USE OF PROCEEDS
Upon consummation of the Offering, the Company will use 49.1% of the
net proceeds from the Offering to repay indebtedness. Management will have broad
discretion as to the application of the remaining 50.9% of the net proceeds,
which will be allocated for working capital. A portion of such proceeds may be
used for acquisitions.
GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS
The Company's operations are located in the Dallas-Fort Worth
Metroplex, and the majority of its customers are located in North Texas. The
Company and its profitability may be susceptible to the effects of unfavorable
or adverse local economic factors and conditions affecting this geographic
region.
TECHNOLOGICAL CHANGES
Production technology in the printing industry has evolved and
continues to evolve. The Company does not consider itself a technology leader
and does not attempt to be a leader in this area. The Company invests in
technology improvements after such improvements have been proven to be
cost-effective. The printing industry has experienced significant changes due to
technological changes. Because of advances in computer and related communication
technologies, certain products that were once printed by commercial printers are
now generated on computers through word processing or desktop publishing
software. In addition, some information is now disseminated in digital or
electronic formats rather than disseminated in a paper format and this trend
could continue in the future.
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of this Offering, the directors and executive officers
will own approximately 70.71% of the outstanding Common Stock of the Company. As
a result, these shareholders will be able to control the management and policies
of the Company through the ability to determine the outcome of elections for the
Company's Board of Directors and other matters requiring the vote or consent of
shareholders of the Company. See "Principal Shareholders."
DILUTION
Purchasers of shares of the Common Stock will suffer an immediate,
substantial dilution of approximately $3.96 per share or approximately 79% in
the net tangible book value of their shares of Common Stock since $5.00 of the
Unit purchase price attributable to the Common Stock substantially exceeds the
current tangible book value per share of Common Stock. See "Dilution."
12
<PAGE> 13
COMPETITION
The commercial printing industry is extremely competitive and
fragmented. The Company has no patented or proprietary products. The Company
competes with numerous large and small printing companies, some of which have
greater financial resources, and the number of printing companies providing UV
Curing of Inks and Coatings is greater at this time than it has been in prior
years. The Company competes on the basis of ongoing customer service, quality of
finished products and price. No assurance can be given that the Company will be
able to compete effectively in the future. See "Business-Competition."
INTEGRATION OF ACQUISITIONS
A material element of the Company's growth strategy is to expand its
business by purchasing commercial printers in other geographical markets and
converting them into satellite operations of the Company. The Company has no
experience in purchasing printing companies. While the Company continuously
evaluates opportunities to make strategic acquisitions, it has no present
commitments or agreements with respect to any material acquisitions. There can
be no assurance that the Company will be able to identify and acquire such
companies or that it will be able to successfully integrate the operations of
any companies it acquires. Further, any acquisition may initially have an
adverse effect upon the Company's operating results while the acquired
businesses are adopting the Company's management and operating practices. In
addition, there can be no assurance that the Company will be able to establish,
maintain or increase profitability of an entity once it has been acquired. Also,
if the Company does not have sufficient cash resources for any acquisition, its
growth could be limited. There can be no assurance that the Company will be able
to obtain adequate financing for any acquisition, or that, if available, such
financing will be on terms acceptable to the Company. The consent of the
Company's primary lender will be required to be obtained in order to consummate
such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Business-Business Strategy."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the
meaning of Section 27A of the Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors that might cause
such differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the Act and
Section 21E of the Act, which apply to certain forward-looking statements, are
not applicable to this Offering.
NO DIVIDENDS EXCEPT TAX DIVIDENDS
The Company has not declared or paid any cash dividends on its Common
Stock since its inception except for Subchapter S distributions to the
shareholders proportional to their Subchapter S tax liabilities. The Company
currently intends to retain all earnings for the operation and expansion of its
business and does not anticipate paying any dividends in the foreseeable future.
In addition, the Company's credit agreement prohibits the payment of dividends.
See "Dividend Policy" and "Note 1 of Notes to Financial Statements."
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of the
United States and Texas concerning emissions into the air, discharges into
waterways and the generation, handling and disposal of waste materials. While
the Company believes it is currently in substantial compliance with these laws
and regulations, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations. See
"Business-Government Regulation and Environmental Matters."
13
<PAGE> 14
SHARES OF COMMON STOCK RESERVED UNDER STOCK OPTION PLAN
The Company has reserved 300,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to the Company's
Stock Option Plan. The existence of these options and any other options or
warrants may prove to be a hindrance to future equity financing by the Company.
Further, the holders of such options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
5,600,000 shares of Common Stock (5,780,000 shares if the Representatives'
Over-allotment Option is exercised in full). The existing shareholders have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities exercisable for or convertible into Common
Stock for a period of one year after the date of this Prospectus without the
prior written consent of the Representatives.
No predictions can be made as to the effect, if any, that market sales
of such shares will have on the market price of shares of Common Stock
prevailing from time to time. However, sales of substantial amounts of Common
Stock in the open market or the availability of such shares for sale following
the Offering could adversely affect the market price for the Common Stock. See
"Shares Eligible for Future Sale," "Description of Securities" and "Principal
Shareholders."
ARBITRARY OFFERING PRICE AND EXERCISE OF WARRANTS
The public offering price of the Units and the exercise price of the
Warrants, as well as the exercise price of the Warrants underlying the
Representatives' Warrant, have been determined solely by negotiations between
the Company and the Representatives. Among the factors considered in determining
these prices were the Company's current financial condition and prospects,
market prices of similar securities of comparable publicly traded companies, and
the general condition of the securities market. However, the public offering
price of the Units as well as the amount of the offering price attributable to
the Common Stock and the Warrants and the exercise price of the Warrants and the
underlying Warrants do not necessarily bear any relationship to the Company's
assets, book value, earnings or any other established criterion of value. See
"Underwriting."
Holders of the Warrants have the right to exercise the Warrants only if
there is then a current effective registration statement under the Act and if
the underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. It is possible that the Warrants could be held by persons
residing in states where the Company is unable to qualify the Common Stock
underlying the Warrants for sale. The Company has undertaken, however, to
qualify the Warrants for listing on the Boston Stock Exchange which provides for
blue-sky registration in 11 states. The Warrants may expire, unexercised, which
would result in the holders losing all the value of the Warrants. See
"Description of Securities-Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the then
current market price when the holder might otherwise wish to hold the Warrants
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrants in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not redeem the Warrants at any time that a current registration statement
under the Act is not then in effect. The Company may be expected to redeem the
Warrants at a time when the market price of the Common Stock exceeds $10.00 per
share for more than 10 days. See "Description of Securities-Warrants."
14
<PAGE> 15
EXERCISE OF REPRESENTATIVES' PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representatives, for nominal consideration, a Representatives' Warrant to
purchase up to 120,000 Shares and up to 120,000 Warrants from the Company. The
Representatives' Warrant will be exercisable for a four-year period commencing
one year from the effective date of the Offering at an exercise price of $6.00
per Share and $0.15 per Warrant, subject to adjustment. The Representatives'
Warrant may have certain dilutive effects because the holders thereof will be
given the opportunity to profit from a rise in the market price of the
underlying shares with a resulting dilution in the interest of the Company's
other shareholders. The terms on which the Company could obtain additional
capital during the life of the Representatives' Warrant may be adversely
affected because the holders of the Representatives' Warrant might be expected
to exercise them at a time when the Company would otherwise be able to obtain
comparable additional capital in a new offering of securities at a price per
share greater than the exercise price of the Representatives' Warrant.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Units,
the Common Stock or the Warrants. Although the Company has applied to list the
Units, the Common Stock and the Warrants on the Boston Stock Exchange and the
Nasdaq SmallCap Market, there can be no assurance that a regular trading market
will develop (or be sustained, if developed) for the Units, the Common Stock or
the Warrants upon completion of this Offering, or that purchasers will be able
to resell their Units, Common Stock or Warrants or otherwise liquidate their
investment without considerable delay, if at all. Recent history relating to the
market prices of newly public companies indicates that, from time to time, there
may be significant volatility in their market price. There can be no assurance
that the market price of the Units, the Common Stock or the Warrants will not be
volatile as a result of a number of factors, including the Company's financial
results or various matters affecting the stock market generally.
PREFERRED STOCK AUTHORIZED
The Company's Articles of Incorporation authorize the issuance of
3,000,000 shares of preferred stock, the rights, preferences and privileges of
which are to be determined by the Company's Board of Directors. Although the
Company has no intention at the present to issue any preferred stock, the
Company may in the future issue and sell preferred stock, which will likely have
dividend, distribution and liquidation preferences senior to common shareholders
and voting rights which may dilute the common shareholder voting rights. See
"Description of Securities-Preferred Stock."
REPRESENTATIVES' POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Units will be sold
to customers of the Representatives. Although the Representatives have advised
the Company that they intend to make a market in the Securities, they will have
no legal obligation to do so. The prices and the liquidity of the Securities may
be significantly affected by the degree, if any, of the Representatives'
participation in the market. No assurance can be given that any market making
activities of the Representatives, if commenced, will be continued. The Common
Stock and the Warrants may not be traded separately until , 1999, (180 days from
the date of this Prospectus) unless earlier separated upon three days notice in
the sole discretion of the Representatives and without the consent of the Unit
holders. The Warrants are not exercisable until separated from the Units.
Factors that the Representatives will consider in determining whether to
separate the Units before , 1999 are the trading price and volume for the Units
and the volatility of the trading price for the Units. See "Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE
TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the
15
<PAGE> 16
price at which the Units offered to the public pursuant to this Offering will be
equal to $5.125, there can be no assurance that the Company will be able to
satisfy the listing criteria of the Boston Stock Exchange or that the Units, the
Common Stock or the Warrants will trade for $5.00 or more after the Offering.
Consequently, the "penny stock" rules may restrict the ability of broker/dealers
to sell the Company's Securities and may affect the ability of purchasers in
this Offering to sell the Company's Securities in a secondary market.
Although the Company has applied for listing of the Units, the Common
Stock and the Warrants on the Boston Stock Exchange and the Nasdaq SmallCap
Market, there can be no assurance that such application will be approved or that
a trading market for the Units, the Common Stock and the Warrants will develop
or, if developed, will be sustained. Furthermore, there can be no assurance that
the Securities purchased by the public hereunder may be resold at their original
offering price or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange, a
company must, among other things, have at least $3,000,000 in total assets,
$2,000,000 of net tangible assets, $100,000 of net income in two of the past
three years or $2,000,000 net tangible assets, a 750,000 share "public float,"
with a $1,500,000 market value, 600 beneficial holders, a minimum $2.00 bid
price and $1,000,000 stockholders equity. For continued listing on the Boston
Stock Exchange, a company must maintain $1,000,000 of total assets, a 150,000
share public float with a $500,000 market value, 250 beneficial owners and a
minimum $500,000 of stockholders equity. The failure to meet these maintenance
criteria in the future may result in the discontinuance of the listing of the
Securities on the Boston Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market,
a company must, among other things, have at least $4,000,000 in net tangible
assets, $5.0 million "public float," and a minimum bid price for its securities
of $4.00 per share. For continued listing on the Nasdaq SmallCap Market, a
company must maintain $2,000,000 in net tangible assets and a $1,000,000 market
value of the public float. In addition, continued inclusion requires two
market-makers and a minimum bid of $1.00 per share. The failure to meet these
maintenance criteria in the future may result in the discontinuance of the
listing of the Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria
(either initially or on a continued basis) of the Boston Stock Exchange or the
Nasdaq SmallCap Market and is never traded or becomes delisted therefrom,
trading, if any, in the Common Stock and the Warrants would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, "Electronic Bulletin Board" administered by the National
Association of Securities Dealers, Inc. (the "NASD"). In such an event, the
market price of the Common Stock and the Warrants may be adversely impacted. As
a result, an investor may find it difficult to dispose of or to obtain accurate
quotations as to the market value of the Common Stock and the Warrants.
16
<PAGE> 17
DILUTION
The net tangible book value of the Common Stock at March 31, 1998 was
$1,069,431 or $0.24 per share. "Net tangible book value per share" represents
the amount of total tangible assets less total liabilities, divided by the
number of total shares of Common Stock outstanding. After giving effect to the
sale of the 1,200,000 Units (1,200,000 shares of Common Stock and 1,200,000
Warrants) at an assumed initial public offering price per Unit of $5.125 or
$5.00 per Share and $.125 per Warrant, and the initial application of the
estimated net proceeds therefrom, pro forma net tangible book value of the
Company at March 31, 1998, would have been $5,846,335 or $1.04 per share ($1.15
per share if the Over-allotment Option is exercised), representing an immediate
increase in net tangible book value of $0.80 per share to existing shareholders
and an immediate dilution of $3.96 per share (or approximately 79% dilution) to
purchasers of shares of Common Stock in this Offering as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $5.00
Net tangible book value per share before Offering............. $0.24
Increase in value per share attributable to new investors..... $0.80
-----
Pro forma net tangible book value per share after Offering......... $1.04
-----
Dilution per share to new investors................................ $3.96
=====
Percentage dilution................................................ 79%
</TABLE>
The following table sets forth as of March 31, 1998, (i) the number of
shares of Common Stock purchased from the Company by the existing shareholders,
the total consideration paid and the average price per share paid for such
shares by the existing shareholders and (ii) the number of shares of Common
Stock to be sold by the Company in this Offering, the total consideration to be
paid and the average price per share.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Per Share
---------------------- ---------------------- -------------
Number Percent Amount Percent
--------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,400,000 79% $ 685,824 10% $0.16
New investors 1,200,000 21% 6,000,000 90% $5.00
--------- ----- ---------- ---
Total 5,600,000 100.0% $6,685,824 100%
========= ===== ========== ===
</TABLE>
17
<PAGE> 18
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,200,000 Units offered hereby are estimated to be approximately $5,035,000
($5,846,800 if the Representatives' Over-allotment Option is exercised in full)
assuming an initial public offering price of $5.125 per Unit and after deducting
the estimated underwriting discounts and offering expenses and a non-accountable
expense allowance payable to the Representatives equal to 2% of the gross
proceeds.
The following table reflects the application of the estimated net
proceeds by the Company:
<TABLE>
<CAPTION>
DOLLAR PERCENT OF
AMOUNT NET PROCEEDS
---------- ------------
<S> <C> <C>
Reduce outstanding balance on revolving credit line with
senior lender $2,021,786 40.16%
Repay 1996 debentures 248,820 4.94%
Repay 1997 debentures 185,666 3.69%
Repurchase outstanding warrants 139,074 2.76%
Working capital 2,439,654 48.45%
---------- -----
Total $5,035,000 100.0%
========== =====
</TABLE>
At March 31, 1998, the Company's outstanding balance under the
revolving credit note issued to its senior lender was $2,021,786. The advances
under this note have been used by the Company to provide working capital. The
outstanding indebtedness under this note bears interest at a rate equal to the
prime rate plus 1.0% and is repayable on December 31, 1998.
In July 1996, the Company borrowed $350,000 from certain of its
shareholders and other individuals and issued debentures to the lenders. The
proceeds were used to meet working capital needs of the Company. The 1996
debentures are payable in equal installments of principal and interest, based on
a 60 month amortization schedule with interest at 14% per annum, and with a
balloon payment of the outstanding principal in July, 1999. The balance owed on
the 1996 debentures at the time of the Offering will be approximately $248,820.
The balance at March 31, 1998 was $261,998.
In December 1997, the Company borrowed an additional $200,000 from
certain of its officers, directors and their family members, and issued
debentures for said loans. The proceeds were used to fund $200,000 of the
remaining amount due to John T. White, President of the Company, under a 1992
debenture, with the balance of the repayment coming from internally generated
cash flow. The 1997 debentures are payable in equal installments of principal
and interest, based on a 60 month amortization schedule with interest at 14% per
annum, and with a balloon payment of the outstanding principal in December,
2000. The balance which will be owed on the 1997 debentures at the time of the
Offering will be approximately $185,666. The balance at March 31, 1998 was
$190,507.
The Company issued warrants to each of the lenders of the 1996 and 1997
debentures, and has the right to redeem the warrants for $139,074. The
redemption prices were established at the time the debentures were issued in
1996 and 1997.
The balance of the net proceeds will be used for general working
capital, including a reduction of accounts payable to take advantage of
available discounts and possible acquisitions of additional printing operations.
The Company does not have any present agreements or understandings regarding any
such acquisitions.
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<PAGE> 19
Pending application of the net proceeds of this Offering, the Company
may invest such net proceeds in interest-bearing accounts, United States
government obligations, certificates of deposit or short-term interest bearing
securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock since its inception except for Subchapter S distributions to the
shareholders proportional to their Subchapter S tax liabilities. The Company
currently intends to retain all earnings for the operation and expansion of its
business and does not anticipate paying any dividends in the foreseeable future,
except for the Subchapter S tax liabilities on taxable earnings for fiscal 1998
occurring prior to June 1, 1998, the date of the termination of Subchapter S
status. The Company's current revolving credit line prohibits the payment of
dividends under certain conditions.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as
of March 31, 1998, and (ii) as adjusted to reflect the sale by the Company of
1,200,000 Units offered hereby at an assumed initial public offering price of
$5.125 per Unit (after deduction of the underwriting discount and estimated
offering expenses) and the application of the net proceeds therefrom as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1998
------------------------
Actual As Adjusted
---------- -----------
<S> <C> <C>
Current portion of long-term debt $ 611,166 $ 516,555
Long-term debt, less current portion 2,973,938 2,735,066
Shareholders' equity
Preferred stock: 3,000,000 share of $1.00 par value authorized, no
shares issued and outstanding 0 0
Common stock: 20,000,000 share of $.01 par value authorized,
4,400,000 shares issued and outstanding; 5,600,000 shares issued
and outstanding, as adjusted (1) 44,000 56,000
Common stock purchase warrants 0 150,000
Additional paid-in capital 641,824 5,375,750
Accumulated earnings 383,607 264,585
---------- ----------
Total shareholders' equity 1,069,431 5,846,335
---------- ----------
Total capitalization $4,654,535 $9,097,956
========== ==========
</TABLE>
- ----------
(1) Excludes the issuance of (i) 1,200,000 shares of Common Stock upon exercise
of the Warrants; (ii) up to 360,000 shares of Common Stock issuable
pursuant to the Representatives' Over-allotment Option and shares
underlying the Warrants included therein; (iii) 240,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrant and the
Underlying Warrants included therein; and (iv) 300,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan, of which
no shares of Common Stock are currently subject to outstanding options. See
"Underwriting", "Management-Stock Option Plan" and "Description of
Securities."
19
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The data for the years ended December 31, 1997 and
1996 are derived from the audited financial statements included elsewhere in
this Prospectus. The data for the three months ended March 31, 1998 and 1997 are
derived from unaudited financial statements that are included elsewhere in this
Prospectus.
THREE MONTHS THREE MONTHS
<TABLE>
<CAPTION>
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue $4,629,824 $3,939,448 $20,114,549 $15,715,395
Costs of goods sold 3,694,190 3,058,955 15,466,484 12,101,986
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative expenses 752,731 720,056 3,269,575 2,872,913
Income from operations 110,903 89,937 984,375 518,174
Other expense, net (27,780) (93,754) (432,910) (346,564)
Pre-tax income (loss) 83,123 (3,817) 551,465 213,360
========== ========== =========== ===========
Income tax provision (1) (29,554) - (189,638) (81,354)
Net income (loss) (1) $ 53,569 $ (3,817) $ 361,827 $ 132,006
========== ========== =========== ===========
PRO FORMA EARNINGS PER SHARE (1):
Basic and diluted $ 0.01 $ 0.00 $ 0.08 $ 0.03
Weighted average outstanding shares 4,400,000 4,400,000 4,400,000 4,400,000
OTHER DATA:
EBITDA (2) $ 413,930 $ 336,995 $1,884,060 $1,629,012
Net cash provided by (used in) operating
activities (27,016) 508,065 568,543 485,755
========== ========== =========== ===========
Net cash provided by (used in) investing
activities (124,104) 173,422 656,081 236,506
========== ========== =========== ===========
Net cash provided by (used in) financing
activities (573,943) (1,413,213) (1,270,200) 85,816
========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------
Actual As Adjusted (3)
----------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ (269,506) $ 4,268,526
=========== ===========
Total assets 9,698,195 12,140,000
=========== ===========
Long-term debt and capitalized lease
obligations, less current portion 2,973,938 2,735,066
=========== ===========
Shareholders' equity $ 1,069,431 $ 5,846,335
=========== ===========
</TABLE>
- ---------------
(1) Adjusted to reflect the conversion from "S" Corporation status to "C"
Corporation status prior to the Offering.
(2) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating income in accordance with generally accepted
accounting principles. EBITDA is presented because management believes that
it is a widely accepted financial indicator of a company's ability to
service and/or incur
20
<PAGE> 21
indebtedness, maintain current operating levels of fixed assets and acquire
additional operations and businesses. Accordingly, significant uses of
EBITDA include, but are not limited to, interest and principal payments on
long-term debt, including indebtedness under the Company's revolving credit
agreement. Items excluded from EBITDA, such as interest, taxes,
depreciation and amortization, are significant components of the Company's
operations and should be considered in evaluating the Company's financial
performance.
(3) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of March 31, 1998 and reflects the issuance of the
Securities offered by the Company hereby and the application by the Company
of the net proceeds therefrom. See "Use of Proceeds."
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the financial statements, including the notes thereto,
and the other financial information appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following is a summary of the revenues and expenses of the Company
for the periods indicated, with the expenses and profits as a percentage of
revenue and with the percentage increase or decrease from March, 1997 to March,
1998.
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS % INCREASE
YEAR ENDED % OF YEAR ENDED % OF ENDED % OF ENDED % OF (DECREASE)
DECEMBER 31, SALES DECEMBER 31, SALES MARCH 31, SALES MARCH 31, SALES 1998 FROM
----------- ----- ----------- ----- ---------- ----- ---------- ----- ---------
1997 1996 1998 1997 1997
----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $20,114,549 100% $15,715,395 100% $4,629,824 100% $3,939,448 100% 17.5%
Costs of goods sold 15,466,484 76.9% 12,101,986 77.0% 3,694,190 79.8% 3,058,955 77.6% 20.8%
Gross profit 4,648,065 23.1% 3,613,409 23.0% 935,634 20.2% 880,493 22.4% 6.3%
Selling, general and
administrative expenses 3,269,575 16.3% 2,872,913 18.3% 752,731 16.3% 720,056 18.3% 4.5%
Income from operations 984,375 4.9% 518,174 3.3% 110,903 2.4% 89,937 2.3% 23.3%
Other expense, net (432,910) (2.2)% (346,564) (2.2)% (27,780) (0.6)% (93,754) (2.4)% (70.4)%
--------- --------- --------- ---------
Pre-tax income (loss) 551,465 2.7% 213,360 1.4% 83,123 1.8% (3,817) (0.1)%
======== ======== ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues for the three months ended March 31, 1998, increased 17.5% to
$4.6 million compared to $3.9 million for the three months ended March 31, 1997,
reflecting continuing strong sales to existing customers during the first
quarter which has been typically weak for the Company for several years.
The costs of goods sold include materials, outside services, labor and
other factory costs. The costs of materials and outside services increased to
$1.7 million in the first quarter of 1998 from $1.5 million in the first quarter
of 1997, with a slight increase in the percentage of revenue spent on materials
and outside services.
The cost of labor increased to $1.2 million in the first quarter of
1998 from $0.9 million in the first quarter of 1997, and the cost of labor as a
percentage of sales increased to 25.1% from 22.9%. This increase in the cost of
labor resulted from a higher level of hand work for the jobs sold in the first
quarter of 1998 in comparison to jobs sold in the first quarter of 1997.
The other factory costs of the Company also increased to $0.8 million
in the first quarter of 1998 from $0.7 million in the first quarter of 1997,
though these costs, as a percentage of sales, decreased to 16.7% from 17.7% as
the fixed costs of operations were more efficiently utilized in the quarter. The
higher labor costs were only partially offset by the better plant utilization,
but when combined with the increase in revenues, the gross profit of the Company
increased to $935,634 in the first quarter of 1998 from $880,493 in the first
quarter of 1997.
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<PAGE> 23
Selling, general and administrative expenses increased by $32,675 in
the first quarter of 1998 to $752,731 from $720,056 in the first quarter of
1997. However, as a percentage of revenue the costs decreased to 16.3% in the
first quarter of 1998 from 18.3% in the first quarter of 1997.
Other expense (net) includes interest expense and other gains and
losses. Interest expense was approximately the same in the first quarters of
1998 and 1997. Other gains and losses moved favorably to a gain of $90,296 in
the first quarter of 1998 from a gain of $44,544 in the first quarter of 1997.
This change was the result of profits at Performance Packaging which completed
the move of its packaging plant to its current facility in the summer of 1997.
In the first quarter of 1998, 94.7% of total revenues at Performance Packaging
were from Pinnacle.
As a result of the foregoing, pre-tax net income rose to $83,123 in the
first quarter of 1998 from a loss of $3,817 in the first quarter of 1997. The
Company makes no provisions for income tax since it is an S corporation for
federal income tax purposes, though it will convert to a C corporation for
federal income tax purposes at the time of the Offering.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997, increased 28% to $20.1
million compared to $15.7 million for the year ended December 31, 1996. The
increase was primarily attributable to increases in sales to existing customers,
as improvements in plant operations begun in 1996 and continued in the first
three quarters of 1997 increased customer confidence. Large format offset
printing, a service added in 1996, began to add customers in 1997, and business
developed by new sales persons added in 1996 increased both the
point-of-purchase advertising materials and commercial printing sold by the
Company in 1997. Revenues for the fourth quarter of 1997 increased by 37% over
the revenues for the fourth quarter of 1996, as strengthening sales throughout
the year showed greatest improvement in the fourth quarter.
The costs of materials and outside services increased to $7.6 million
in 1997 from $5.7 million in 1996, with an increase of 1.7% in the percentage of
revenue spent on materials and outside services. These expenses can vary
substantially as a percentage of revenue from year to year, depending on the
amount of materials furnished by customers on large jobs and the extent to which
services are performed by sub-contractors of the Company. The costs of materials
and outside services in 1997 were in line with those in 1996.
While additional labor was required in 1997 to perform the work
necessary to increase the revenues in 1997 over those in 1996, with the cost of
labor increasing to $4.1 million in 1997 from $3.5 million in 1996, the cost of
labor as a percentage of sales decreased to 20.3% from 22.0%. Labor can be a
variable expense reflecting the amount of work performed by the Company, but a
substantial portion of factory labor is a fixed expense, reflecting the
necessity that the Company has available capacity for new business. With the
increases in revenues in 1997 the labor force of the Company was better utilized
than in 1996.
The other factory costs of the Company also increased, to $2.4 million
in 1997 from $1.8 million in 1996, with scheduled increases in equipment leases
as negotiated at the time of equipment installations and increases to repair
costs as press warranties expired. The increase in revenues kept the fixed
factory costs, as a percentage of revenue relatively flat, at 19.0% in 1997
compared to 18.7% in 1996. As a result of these efficiencies in the use of labor
and the maintenance of other factory costs as a percentage of revenue, the gross
profit of the Company increased to $4.6 million in 1997 from $3.6 million in
1996.
Selling, general and administrative expenses increased by $.4 million
in 1997 to $3.3 million from $2.9 million in 1996. However, as a percentage of
revenue the costs decreased to 16% in 1997 from 18% in 1996. The Company decided
to spend more money on its selling efforts in 1997 than in 1996, and it took a
larger reserve for doubtful accounts, increasing the administrative costs for
1997, but these increases were more than offset by the increases in revenues for
1997, resulting in lower costs as a percentage of revenue.
Interest expense decreased to $587,548 in 1997 from $610,310 in 1996,
primarily as a result of the Company's move to a new lender with a lower
interest rate for its revolving working capital loan in 1997. Other gains and
losses moved unfavorably to a gain of $154,638 in 1997 from a gain of $263,746
in 1996. This change
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<PAGE> 24
was primarily the result of losses suffered at Performance Packaging which
suffered operating losses in connection with the move of the packaging plant to
its current facility in the summer of 1997. In 1997, 96.4% of total revenues at
Performance Packaging were from Pinnacle. Gains from cash sales of property and
equipment increased to $191,423 in 1997 from $90,727 in 1996.
As a result of the foregoing, pre-tax net income rose to $551,465 in
1997 from $213,360 in 1996. The Company makes no provisions for income tax since
it is an S corporation for federal income tax purposes, though it will convert
to a C corporation for federal income tax purposes prior to the Offering.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements from
funds generated from operations and credit facilities provided by financial
institutions, other lenders and shareholders. Cash flow provided by operations
was ($27,016) and $508,065 for the three months ended March 31, 1998 and 1997
respectively, and $568,543 and $485,755 for the years ended 1997 and 1996
respectively. The Company intends to apply approximately $2.5 million of the net
proceeds of the Offering to the repayment of certain indebtedness and reduction
of certain indebtedness, including the Company's line of credit and certain term
indebtedness. See "Use of Proceeds."
Trade accounts receivable outstanding December 31, 1997 increased by
42% over amounts outstanding December 31, 1996, primarily as a result of
increases in fourth quarter sales in 1997 over 1996. Substantially all of the
amounts receivable at the end of 1997 have been collected except for one invoice
on which approximately $625,000 is owed. The Company delivered the goods on
which that invoice was based, and the buyer successfully resold the goods as
part of a successful advertising campaign. The customer has disputed the quality
and quantity of product shipped, claiming that only 80% of the quantity of
printed sheets invoiced was good product. The Company believes that it met its
obligations to the customer and that the customer is making the claims in an
effort to increase its profits on the project. The Company has accrued 24% of
the amount due as a reserve against this account, and based on its history of
collecting from this customer in a previously disputed claim by the same
customer for which 100% of the balance invoiced was collected, the Company
believes it has adequately reserved for the contingency of non-payment from this
customer. However, the amount due from the customer is not secured by any
collateral. The Company is pursuing collection of the invoice through
litigation. See "Note 1 to Financial Statements."
The Company has a revolving credit facility with a senior lender which
permits borrowings of up to $3.5 million, subject to borrowing base
requirements. This credit facility, which bears interest at the prime rate plus
1% (for a total of 9.5% as of December 20, 1997), is secured by a lien on
substantially all of the Company's assets. In addition, John T. White, an
executive officer and director of the Company, has personally guaranteed the
Company obligations under this credit facility. The Company pays a 0.25% unused
facility fee on the unused portion of this credit facility which matures on
December 19, 1998. At March 31, 1998, the Company had borrowings of
approximately $2,021,786 outstanding under this credit facility. The Company
intends to reduce the outstanding balance of this credit facility with the net
proceeds from this Offering. See "Use of Proceeds."
Heller Financial, Inc. ("Heller") provided bridge financing for the
purchase of the printing division building in the original principal amount of
$1,260,000 on April 5, 1995. In 1997 this loan was replaced with three long term
loans held by Heller, having outstanding balances as of March 31, 1998, of
$683,882, $567,747 and $54,464 and annual payments of $83,868, $54,960 and
$16,764 respectively.
In December 1997, the Company issued unsecured notes in the aggregate
principal amount of $200,000 to certain of its officers, directors, and their
family members. These notes are due in December 2000 and bear interest at 14%.
The Company will repay these notes with the net proceeds from this Offering. See
"Use of Proceeds" and "Certain Transactions."
In July, 1996, the Company issued promissory notes secured by the
Company's interest in Performance Packaging promissory notes in the aggregate
principal amount of $350,000 to certain officers, directors and their family
members. These notes are due in July 1999 and bear interest at 14%. The Company
will repay these notes with the net proceeds from this Offering. See "Use of
Proceeds" and "Certain Transactions."
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<PAGE> 25
The Company has financed its purchases of equipment through term
financing and equipment leases from several equipment lenders. Interest rates
average approximately 9.5% per annum, with payment terms ranging from 48 months
to 96 months. The total outstanding obligations under these financings on March
31, 1998 was $1,909,794.
The Company has previously leased printing equipment from certain
related companies. Effective March 31, 1998, most of the equipment owned by the
lessors was sold back to the equipment manufacturer, and the manufacturer agreed
to lease the equipment directly to the Company on terms more favorable than the
original lease. The balance of the equipment was transferred to the Company from
one of the lessors in exchange for the assumption by the Company of the debt
owed by the lessors to the equipment manufacturer. As a result of the
transaction, the Company's lease payments will be approximately $65,000 per year
greater in 1998 than in 1997, but the new lease will eliminate a large balloon
payment, reduce the escalation of lease payments over the next five years and
grant the Company options to purchase the equipment at fair market value after
four years. See "Certain Transactions".
The Company has no significant commitments at this time which would
require that it expend capital and believes its current facilities and capital
equipment are adequate for the Company as currently structured.
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<PAGE> 26
BUSINESS
Performance Printing is a printing and display manufacturing company
primarily engaged in the business of serving the point-of-purchase advertising
industry. In addition to its Display and Printing divisions which are operated
from separate plants, the Company owns a majority interest in Performance
Packaging, which packages trading cards and related products. All three plants
are in close proximity to one another in Dallas, Texas. The sales and
administrative offices are located in a corporate office separate from any of
the plants.
The Company's business has been built around a core specialty of
printing with inks and coatings which are cured with ultra violet light ("UV").
This UV printing technology enables the Company to print on Substrates other
than paper, such as vinyl, styrene and PETG. Over the past few years, the
Company has added UV screen printing to compliment the UV offset printing,
allowing it to print on more diverse materials such as metal and very thick
materials and to use special inks and coatings.
BUSINESS STRATEGY
Historically, the Company has grown and profited by increasing its
capacity and adding services complimentary to its existing specialties. The
Company has a two-point growth strategy for the future:
o Internal Growth The Company will continue to build its existing business
in Dallas, Texas, adding new specialties and related services when
appropriate. Much of its existing equipment has more than twice the
capacity utilized in 1997. By utilizing its strong local sales force, local
market share can be increased. By using the national marketing and sales
effort which have been developed over the past five years, the Company
expects to continue to realize a substantial portion of its revenues from
customers located outside of the North Texas area. The Company believes
that it can achieve substantial growth from its existing business.
o Acquisitions The Company plans to acquire small commercial printers and
screen printers in several key markets around the United States and convert
these plants to shops similar to its Dallas operations. Small UV offset and
screen presses and large format digital presses would be installed in these
regional plants which would be operated under the Performance trade name.
The sales force at each would be increased and trained to sell
point-of-purchase advertising and related materials. Jobs requiring the use
of the multi-million dollar presses such as the Company's equipment in
Dallas would be transferred to Dallas for production. The regional plants
would facilitate the development of close relationships with major users of
point-of-purchase advertising and related materials, with primary emphasis
on sales, pre-press and short run work in the regional plants. The Company
believes that it can develop three to five such regional centers over the
next three years, achieving substantial additional growth and profits from
these new regional centers.
The Company expects, over the four fiscal years ending December 31, 2002,
that its growth will be divided approximately equally between internal growth
and acquisitions. The Company believes that it will continue its internal
historic growth over the next four years. In the event the Company is not
successful in locating suitable acquisition candidates at the rate of two per
year, it will depend primarily on its internal growth rate to increase its
revenues. The Company will seek to acquire other printing companies with annual
revenues in the $5 to $10 million range. If the Company acquires one or more
printing companies with revenues greater than its targeted range, the increase
in sales could be weighted more toward acquistion than internal growth.
INDUSTRY BACKGROUND
Although the Company is built around specialty printing, it is
considered a commercial printer by industry classification. The commercial
printing industry is one of the largest and most fragmented manufacturing
industries in the United States. According to the Printing Industries of
America, Inc. ("PIA"), the main national trade organization for the industry,
there were approximately 52,000 printing firms with total annual revenues of
$132 billion in 1996. Of the 27,600 commercial, screen and specialty printers,
only 621 had more than 100 employees in 1996, but these firms sold 42% of the
$72.8 billion in revenues sold by the commercial, screen and specialty printers.
The printing industry is experiencing considerable consolidation at this time.
Several printing companies are in the business of acquiring other printing
companies.
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<PAGE> 27
The point-of-purchase advertising industry was a $12 billion industry
in 1995 according to the Point-of-Purchase Advertising Institute, an industry
trade organization. The Institute reported a growth of 8% for the industry from
1994 to 1995.
COMPANY OPERATIONS
The Company has used its core specialties involving offset and screen
printing of UV cured materials to attract customers, and, once relationships are
established, the Company often sells commercial printing services to them as
well. Moreover, the Company has added many other complimentary services to go
with its UV printing and its commercial printing, such as complete pre-press
services, large format printing which is used for large point-of-purchase
displays, folding and gluing of decorative cartons for in-store use, die cutting
of printing and display materials, thermoforming of plastics for displays, large
format digital printing for short run banners and posters, and kitting and
fulfillment of advertising materials for in-store use.
The equipment used for these specialties is expensive in comparison to
much of the equipment used in commercial printing. Not only is it necessary to
have large presses with multiple colors and finishing equipment to match the
presses, but the curing equipment is also expensive. In addition, customers
require very fast turn time as advertising campaigns are commonly late in the
creative and approval phase, shortening the available time for manufacturing.
Thus the Company is required to have a great deal of ready capacity to meet
these requirements. However, hourly rates and material markups are also
relatively high for this type of work.
The Company fills in the idle time for its specialty capacity by
selling commercial printing services and trading card printing. While the prices
for these types of work are not as high as for the specialty services, revenues
from these activities help cover the cost of the necessary capacity.
EQUIPMENT
The Company owns or leases seven sheetfed offset presses ranging from
two colors to eight colors and from 20" to 63" in print width. In addition the
Company has five large format flat bed and cylinder screen presses and an off
line UV coater. The Company's finishing equipment includes a variety of
guillotine cutters, die cutters, folders, gluing machines and wrappers. The
Display Division has three thermoforming machines for plastic molding and large
format digital printers. Almost all of the Company's pre-press services are
performed on its extensive high-end pre-press systems, including scanners and
film output devices.
COMPANY SERVICES
The Company builds relationships with its customers by offering turnkey
services for point-of-purchase advertising materials and related products. Some
of the manufacturing capacity not absorbed with those activities is sold in the
commercial printing market. Products and services offered by the Company include
the following:
o Plastic In-store Materials. Typical products of this core specialty
include static clings, plastic shelf strips, danglers, wobblers, counter
mats, mouse pads, floor graphics and translights, all of which are common
to point-of-purchase advertising.
o Special Inks and Coatings. Using UV curing technology for both offset and
screen printing, inks and coatings with special properties are offered,
including materials with are light fast for outdoor usage and which have
other unusual properties such as sealed scents, glow-in-the-dark
capabilities and temperature sensitive inks which change colors as
temperatures change.
o Large Format Printing. Offset printing up to 63" by 44", digital printing
up to 54" by 36', and screen printing up to 84" by 48". Typical products
include decorative labels for corrugated boxes, posters, banners and
temporary in-store displays.
o Promotional Advertising Materials. Trading cards and other giveaway items
for advertising campaigns by food and beverage companies are manufactured
using UV printing, UV coating and other specialty inks and coatings.
o Kitting and Fulfillment. The Company compiles materials manufactured by it
and other vendors on behalf of its customers and ships the packages
directly to stores for in-store display.
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<PAGE> 28
o Commercial Printing. Using conventional printing, UV printing and a
variety of types of finishing, the Company manufactures brochures, small
catalogs, trading cards, calendars, manuals and other typical commercial
printing products.
o Folding Cartons. Decorative cartons used for in-store sales and direct
marketing sales are printed, coated, die-cut, folded and glued in-house by
the Company.
o Plastic Displays. The Company builds molds, heat forms and finishes a
variety of plastics for in-store displays and for packaging components.
o Design and Advertising. Under the trade name "Performance Marketing", the
Company provides creative and design services for advertising and for
in-store displays. These services include media purchasing, prototype
development, public relations and printing design.
o Trading Card Packaging. Through Performance Packaging, the Company cuts,
collates, over-wraps, shrink-wraps, boxes and ships millions of trading
card packs and similar products each month. Pinnacle is the primary
customer of Performance Packaging. In 1997, 96.4% of total revenues at
Performance Packaging were from Pinnacle.
MARKETING AND SALES
The Company has three primary means of marketing and selling its
services. It has a sales staff of 16 sales persons who sell mainly to customers
located in the North Texas area, although seven of these salespersons also have
accounts in other parts of the United States. In addition, the Company
advertises in national trade magazines for the point-of-purchase and printing
industries, with a marketing staff of four persons responsible for designing and
placement of advertising, public relations and handling inquiries from
customers. The Company also uses telephone marketing through its national sales
department to contact and sell to customers located outside of the North Texas
area. With a staff of four, this department contacts potential buyers by phone,
sends samples and advertising materials to interested prospects and sells to
customers by telephone.
A team of customer service representatives supports the local and
national sales departments. Eight representatives are located in the offset and
display plants to handle order entry, proofing, communications with customers
and production management once sales are made by the salespersons. This lets the
salespersons concentrate on generating new sales while maintaining a close
working relationship with the customers.
CUSTOMERS
Since many of the services rendered by the Company relate to large
projects for customers, sales to particular customers may very significantly
from year to year depending on the number and size of projects required. During
1997, five customers together represented more than 34% of the Company's sales.
For 1997 only one customer accounted for as much as 10% of sales (12.5%). The
Company had 306 total customers in 1997 with an average of approximately $65,700
per customer. The average order sizes in 1997 was approximately $6,200.
PURCHASING RAW MATERIALS
The Company purchases plastics, paper, ink, plates, film, pressroom
supplies and other materials from a number of suppliers. Large orders for paper
and plastics are often placed directly with mills, and routine purchases are
made from product distributors. For large trading card projects and production
of large giveaway premiums, the customers normally furnish the required paper or
plastic. Paper and plastic represent the majority of the materials purchased by
the Company. Though the Company has not found that price increases and decreases
for paper and plastic directly decrease or increase the orders it receives for
printing services, these prices can be volatile in some years. Substantial
increases in the costs of material could reduce the feasibility of some
projects. The Company has not experienced any significant difficulty in
obtaining raw materials necessary to produce orders for its customers.
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<PAGE> 29
FACILITIES AND CAPABILITIES
The Company operates three manufacturing plants. All three plants are
within 10 minutes of driving time from one another, and none are more than 15
minutes from the corporate office.
The Performance Display division is in a leased facility of
approximately 44,000 square feet. The primary lease term expires December 31,
2000. Performance Packaging is in a leased facility of approximately 76,000
square feet. The primary lease term expires April 30, 2002. The Company does not
expect any difficulty in negotiating a lease renewal for either facility if it
desires to do so. The offices and manufacturing areas of both are
air-conditioned and have adequate power.
The Printing division is in a 50,000 square foot facility owned by the
Company. It is located on Interstate Highway 35 near downtown Dallas, which is
an excellent location due to its visibility and accessibility to the highway.
One senior lender has mortgages on the building securing indebtedness in the
aggregate amount of $1,305,593. The equipment lenders and other financing
sources have liens on substantially all of the Company's equipment and
machinery.
The sales, estimating, marketing, advertising agency and administrative
functions of the Company are conducted from the corporate office of the Company
located near downtown Dallas in a 9,200 single tenant office building. The
building is on a month-to-month rental basis from a partnership between John T.
White and Richard D. Cox. Messrs. White and Cox are directors of the Company,
and Mr. White is the Company's Chief Executive Officer.
The Company has substantial capacity available for growth of its
business. With proper staffing of pressmen and assistant pressmen, each printing
press has a potential of four 40-hour shifts per week. With six sheetfed offset
presses currently running only nine shifts at the printing plant, and with the
five screen presses, two digital and one off-line UV coater currently running
only eight shifts, there are a potentially fifteen and twenty-four shifts
available at the printing and display plants, respectively. Currently a portion
of these shifts is filled through overtime work by existing shifts, but the
majority of these available shifts represent additional capacity for the
Company. The existing finishing and pre-press equipment has adequate capacity to
compliment the available capacity on the printing presses. While the employment
market in Dallas, Texas, is tighter now than in recent years, the Company has
not incurred any substantial difficulty in attracting, training and retaining
qualified personnel.
INTELLECTUAL PROPERTY
The Company markets its services in the United States under the names,
"Performance Printing," "Performance Display," "Performance Marketing," and
"Performance Packaging." "Performance Printing," together with its logo, is a
federally registered service mark in the name of the Company.
EMPLOYEES
As of December 31, 1997, the Company had a total of 160 regular
employees, 17 of whom were administrative personnel, 52 of whom were salaried or
commissioned employees and 108 of whom were hourly employees. In addition, the
Company employs up to 50 temporary employees as work requires, with almost all
of such temporary employees providing hand labor services. The Company does not
have any employees engaged in research and development. Performance Packaging
employs 18 regular employees and up to 350 temporary employees for hand labor
services as needed. None of its employees are represented by a collective
bargaining agreement. The Company believes its relations with its employees are
good.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of the
United States and the state of Texas concerning emissions into the air,
discharges into waterways and the generation, handling and disposal of
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<PAGE> 30
waste materials. Responsible agencies include, but are not limited to, the U.S.
Environmental Protection Agency, the Texas Natural Resource Conservation
Commission and regulatory agencies at the county and local level. The printing
and display business generate substantial quantities or inks, solvents and other
waste products requiring disposal under the numerous federal, state and local
laws and regulations relating to the environment. The Company typically recycles
waste paper and plastic, returns salvageable waste ink to its supplier and
contracts for the removal of other waste products. The Company believes it is in
substantial compliance with all applicable air quality, waste disposal and other
environmental-related rules and regulations as well as with other general
employee health and safety laws and regulations. However, there can be no
assurance that future changes in such laws and regulations will not have a
material effect on the Company's operations.
AFFILIATED COMPANIES
Although the Company has no subsidiaries, it owns 51% of Performance
Packaging. The remaining 49% is owned by Pinnacle, which is the primary customer
of Performance Packaging under the terms of the Packaging Agreement, which
terminates on March 31, 2002. The Packaging Agreement provides, in part, that
Pinnacle will have first call on 100% of the packaging capacity of Performance
Packaging in exchange for certain fixed cost payments. For the fiscal year ended
December 31, 1997, Pinnacle accounted for 96.4% of Performance Packaging sales.
Through its 49% stock ownership of Performance Packaging and three of five
members of the management committee (board of directors), Pinnacle has legal
control of Performance Packaging. However, pursuant to an Organizational
Agreement, the Company is responsible for the management of Performance
Packaging and John T. White, President of the Company, is President of
Performance Packaging. Pinnacle has told the Company that it will not continue
its performance under the Packaging Agreement due to Pinnacle's financial
difficulties. The Company recognized a loss from Perforamnce Packaging in 1997,
has already realized its planned profits from Performance Packaging in 1998 and
is not liable for the obligations of Performance Packaging in the future. The
Company's investment in Performance Packaging is less than $50,000 as of the
date of this Prospectus. Although the Company expects Performance Packaging to
cease operations, the Company does not believe that this event will have a
material adverse effect on 1998 and future sales and income.
The Company also has three sister companies, Performance Label
Corporation, Tejas Label Corporation and Southwest UV Corporation (the
"Equipment Companies"), which are owned by shareholders with identical ownership
to that of the Company. All three of these companies were formed and have
existed for the sole purpose of owning printing equipment purchased from and
financed by a printing press manufacturer. Except for a limited guarantee for
approximately $158,000 of payments due between January and June of 1998, none of
the obligations of the Equipment Companies are guaranteed by or the
responsibility of the Company, though all of the presses owned by the Equipment
Companies are leased to the Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
COMPETITION
The Company competes with a number of other commercial printers, some
of which are subsidiaries or divisions of companies having greater financial
resources than those of the Company. Because of the nature of the Company's
business, most of the Company's competition is in the local printing market. The
major competitive factors in the Company's commercial printing business are
ongoing customer service, quality of finished products and price. Customer
service often is dependent on production and distribution capabilities and
availability of printing time on equipment which is appropriate in size and
function for a given project. In addition, competition in the commercial
printing area is based upon the ability to perform the services described with
speed and accuracy. Price and the quality of supporting services are also
important in this regard. Performance Printing believes it competes effectively
on all of these bases. The Company intends to participate in the consolidation
taking place in the printing industry by acquiring printing companies in several
markets throughout the United States. See "-Business Strategy" and "-Industry
Background."
30
<PAGE> 31
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. There are
no pending suits or threatened suits against the Company at this time, though
the Company is the plaintiff in four suits for collection of past due accounts.
The Company is not aware of any pending litigation that is likely to have a
significant negative impact on the business, income, assets or operation of the
Company.
While the Company maintains insurance coverage against potential claims
in an amount which it believes to be adequate, there can be no assurance that
the Company's insurance coverage will be adequate to cover all liabilities
arising out of such claims or that any such claims will be covered by the
Company's insurance. While the outcome of lawsuits or other proceedings against
the Company cannot be predicted with certainty, the Company does not believe
these matters will have a material adverse effect on its business or financial
position.
31
<PAGE> 32
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Chris Pumpelly 60 Chairman of the Board; Vice President
- Business Development; and Director.
John T. White 46 Chief Executive Officer; President; and
Director
Gary H. Homsey 52 Vice President - Marketing
Michael Short 36 Vice President - Operations
Russell V. Oesch 34 Chief Financial Officer; Vice President
- Finance; and Secretary
Greg White 30 Vice President - Sales
Stephen M. Lilly 39 Director
C. Thomas Daulton 43 Director
Richard D. Cox 47 Director
Joseph E. Pate 55 Director
</TABLE>
John T. White has served as President and Chief Executive Officer of the Company
since 1991.
W. Chris Pumpelly has served as Chairman of the Company since 1991. Mr. Pumpelly
founded Performance Printing in 1981, and served as president for the next ten
years. He has 25 years experience in both production and sales and has extensive
knowledge of all types of printing, including UV, specialty and packaging.
Michael Short has served as Vice-President-Operations since April, 1996. Mr.
Short previously was the general manager of Performance Display for four years.
Russell V. Oesch has served as the Vice President-Finance of the Company since
August, 1995. From February to August 1995, he was a consultant for Business
Records Corporation. From November, 1990 to February, 1995, he was the Vice
President of Finance and Accounting for Great American Clubs, Inc., a
hospitality company, and an accounting manager for the international public
accounting firm of KPMG Peat Marwick from August, 1985 to December, 1990. He is
a certified public accountant with 12 years of accounting and finance experience
and two years of printing experience.
Gary H. Homsey has served as Vice President-Marketing for the Company's three
divisions since January, 1993. Mr. Homsey also manages national phone sales and
operates Performance Marketing, an in-house advertising and public relations
agency. From 1977 through 1992, he served as president and creative director of
Homsey Advertising & Public Relations, Inc.
Greg White has served as Vice President-Sales for the Company since August,
1997. Mr. White joined the Company in 1991 and has been the top sales producer
at the Company for the past three years. Mr. White is the brother of John T.
White.
Richard D. Cox has served as a director since 1991. Mr. Cox has been an attorney
and partner with Brown McCarroll & Oaks Hartline in Dallas since 1989.
C. Tom Daulton has been a director since 1991. Mr. Daulton is self-employed in
venture capital. From 1989 through 1995, he served as chief financial officer of
the Company.
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<PAGE> 33
Steven M. Lilly has served as a director of the Company since 1996. Since
August, 1991, Mr. Lilly has been the President and Chief Executive Officer of
Promotional Services International, Inc., a promotional advertising agency, in
Atlanta, Georgia. He has ten years of printing industry experience.
Joseph E. Pate has been a director of the Company since 1991. Mr. Pate was the
operations manager at VidPro International, Inc, a point-of-purchase display
company from August 30, 1996 until April 3, 1998 when he rejoined the Company as
a sales representative. Mr. Pate was a founding partner and vice president of
the Company from 1981 to 1996.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six members. Each
director will hold office until the annual meeting of the shareholders of the
Company next following his election or until his successor is elected and
qualified.
Directors of the Company do not receive compensation for serving as
directors. All directors of the Company are reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof, and for other expenses incurred in their capacities as directors of the
Company. Directors will also be eligible to participate in the Company's stock
option plan. See "Stock Option Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees: a Compensation
Committee and an Audit Committee. The Compensation Committee, currently
comprised of Messrs. Daulton, Lilly and Cox, is responsible for reviewing and
making recommendations to the Board of Directors with respect to compensation of
executive officers, other compensation matters and awards under the Company's
Stock Option Plan. The Audit Committee, currently comprised of Messrs. Cox,
Daulton and Pate, is responsible for reviewing the Company's financial
statements, audit reports, internal controls and the services performed by the
Company's independent public accountants, and for making recommendations with
respect to those matters to the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid by the Company to executive officers who earned over $100,000 for
services during each of the fiscal years ended December 31, 1997 and 1996, and
1995:
<TABLE>
<CAPTION>
Annual Compensation
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation (1)
--------------------------- ---- ------ ----- ----------------
<S> <C> <C> <C> <C>
John T. White 1997 $228,000 $0 $950
President and CEO 1996 227,932 0 0
1995 185,092 0 0
W. Chris Pumpelly 1997 $142,800 $0 $950
Vice President - Business Development 1996 148,957 0 0
and Chairman of the Board 1995 157,373 0 0
Gary Homsey 1997 $131,461 $0 $950
Vice President - Marketing 1996 132,336 0 0
1995 128,654 0 0
Greg White 1997 $199,999 $0 $950
Vice President - Sales 1996 126,890 0 0
1995 114,838 0 0
</TABLE>
- ---------------
(1) Amount consists of matching 401 (k) contributions of $950.
33
<PAGE> 34
STOCK OPTION PLAN
The Board of Directors adopted the Stock Option Plan which provides for
the grant of options to eligible officers, directors, employees and advisors for
the purchase of Common Stock of the Company. The Option Plan covers, in the
aggregate, a maximum of 300,000 shares of Common Stock. The Stock Option Plan
provides for the granting of both incentive stock options (as defined in Section
422 of the Internal Revenue Code of 1986) (the "Incentive Options") and
nonqualified stock options (options which do not meet the requirements of
Section 422) (the "Nonqualified Options").
The Compensation Committee of the Board of Directors (the "Committee")
administers and interprets the Option Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers. The
Committee designates the optionees, the number of shares subject to the options
and the terms and conditions of each option. Certain changes in control of the
Company will cause the options to vest immediately. Each option granted under
the Option Plan must be exercised, if at all, during a period established in the
grant which may not exceed 10 years from the date of grant. An optionee may not
transfer or assign any option granted and may not exercise any options after a
specified period subsequent to the termination of the optionee's employment with
the Company.
The Stock Option Plan provides for the grant of Incentive Options to
employees of the Company or a subsidiary who, in the judgment of the Committee
are responsible for, or contribute to, the management or success of the Company
or a subsidiary. Nonqualified Options may be granted to officers, directors,
employees and advisors of the Company or a subsidiary who, in the judgment of
the Committee are responsible for or contribute to the management or success of
the Company or subsidiary. The exercise price of Incentive Options shall not be
less than 100% of the market price of the Company's stock on the date of grant.
The exercise of Nonqualified Options shall be not less than 85% of the market
price of the Company's stock on the date of grant.
None of the named Executive Officers were granted options during the
year ended December 31, 1997. The Company has no outstanding options to purchase
shares of its capital stock.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation and Bylaws limit the liability
of the directors, officers, employees and agents of the Company to the Company
or its shareholders to the fullest extent permitted by Texas Business
Corporation Act.
The Texas Business Corporation Act permits indemnification of
directors, officers, employees and agents acting in such capacity, so long as
such person acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company. Such indemnification
may be made only upon a determination by the Board of Directors that such
indemnification is proper in the circumstances because the person to be
indemnified has met the applicable standard of conduct to permit indemnification
under the law. The Company is also required to advance to such persons payment
for their expenses incurred in defending a proceeding to which indemnification
might apply, provided the recipient provides an undertaking agreeing to repay
all such advanced amounts if it is ultimately determined that he is not entitled
to be indemnified.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
34
<PAGE> 35
CERTAIN TRANSACTIONS
In 1997, Messrs. White and Pumpelly, executive officers and directors
of the Company, guaranteed two printing press equipment lease agreements for the
Company. The leases provide for level rental payments for 84 months with an
option to purchase the equipment at the end of the lease terms for the fair
market value of the equipment. While the Company has an option to purchase the
presses for their fair market value at the end of the 84 month lease terms, the
guaranty agreements provide that Messrs. White and Pumpelly are obligated to
buy, and an equipment manufacturer is obligated to sell, the presses for 25% of
the initial cost of the presses. It is anticipated that prior to the Offering,
the Company will convert the press leases to outright purchases under option
agreements currently in place, in which event the obligations of Messrs. White
and Pumpelly and an equipment manufacturer relating to the mandatory press
purchases after 84 months will lapse. In the event the Company does not elect to
convert the leases to purchases, the Company and Messrs. White and Pumpelly
expect that the Company will purchase the presses at the same price from either
an equipment manufacturer or Messrs. White and Pumpelly at the end of the 84
month lease term.
The Equipment Companies, which are owned by shareholders with identical
ownership to that of the Company, have existed for the sole purpose of owning
printing equipment purchased from and financed by a printing press manufacturer.
Except for a limited guarantee for approximately $158,000 of payments due
between January and June of 1998, none of the obligations of the Equipment
Companies are guaranteed by, or the responsibility of, the Company though all of
the presses owned by the Equipment Companies are leased to the Company.
Effective March 31, 1998, most of the equipment owned by the Equipment
Companies was sold back to the equipment manufacturer, and the manufacturer
agreed to lease the equipment directly to the Company. The balance of the the
equipment was transferred to the Company from one of the Equipment Companies in
exchange for the assumption by the Company of the debt owed by the Equipment
Company, to the equipment manufacturer. Prior to the date of the Offering, the
Equipment Companies will be dissolved.
Messrs. White and Pumpelly have guaranteed substantially all of the
Company's debt and equipment lease obligations.
The Company rents its corporate office from a partnership between
Messrs. White and Cox. The 9,200 square foot single tenant office building has
been rented under a verbal tenancy at will. Rental payments to the partnership
by the Company were $85,487 in 1995, $82,536 in 1996 and $83,392 in 1997.
On December 1, 1997, the Company issued an aggregate of $200,000
principal amount of unsecured notes (the "1997 Notes") which are due December 1,
2000 and bear interest at 14%. The 1997 Notes were used to retire $200,000 of
indebtedness of the Company to John T. White which was incurred in 1992 to
provide working capital to the Company. The following persons purchased the 1997
Notes for the amounts indicated: John T. White $78,196; Mrs. Diana Peterson, a
shareholder, $30,075; C. Thomas Daulton, director, $19,549; Mrs. Lucy Cox,
mother of Richard D. Cox, $22,180; and Richard D. Cox, a director, $50,000.
In connection with the issuance of the 1997 Notes, the Company entered
into a Warrant for Stock Purchase (the "1997 Note Warrants") with each purchaser
of the 1997 Notes which entitles the note purchasers to purchase a specified
percentage of the Company's outstanding stock, unless the Company pays a
cancellation fee to the note purchaser. The Company will use a portion of the
net proceeds from this Offering to retire the 1997 Notes and to cancel the 1997
Note Warrants. The Company will pay to the following persons the amounts
indicated to redeem the 1997 Warrants: John T. White, $15,115, Mrs. Peterson,
$5,813, Mr. Daulton, $3,779, and Mr. Cox, $13,952. See "Use of Proceeds."
In July, 1996, the Company issued promissory notes (the "1996 Notes")
in the aggregate principal amount of $350,000 secured by the Company's 51%
interest in Performance Packaging. The 1996 Notes are due June, 1999 and the
outstanding principal amount of the 1996 Notes bears interest at 14%. The 1996
Notes were used to provide working capital to the Company. The following persons
purchased the 1996 Notes for the amounts indicated: White, Cox, Larson, P.C.,
Retirement Trust (on behalf of John T. White, Chief Executive
35
<PAGE> 36
Officer and a director) $100,000; Richard D. Cox $50,000; Mrs. Lucy Cox, mother
of Richard D. Cox, $50,000; Thomas P. White, Jr., father of John T. White,
$100,000; and Russell V. Oesch, Chief Financial Officer, $50,000.
In connection with the issuance of the 1996 Notes, the Company entered
into a Warrant for Stock Purchase (the "1996 Note Warrants") which entitled the
note purchasers to purchase a specified percentage of the Company's outstanding
stock, unless the Company pays a cancellation fee to the note purchaser. The
Company will use a portion of the net proceeds from this Offering to retire the
1996 Notes and to cancel the 1996 Note Warrants. The Company will pay the
following persons the amounts indicated to redeem the 1996 Warrants: John T.
White, $28,690; Richard D. Cox, $14,345; Mrs. Cox, $14,345; Mr. Thomas P. White
$28,690; and Russell V. Oesch $14,345. See "Use of Proceeds."
During the periods ended March 31, 1998 and 1997 and the fiscal years
1997 and 1996, the Company sold goods and services to Promotional Services
International, Inc., ("PSI"), in the amounts of $300,242, $151,305, $444,235,
and $6,484, respectively. The Company continues to provide services to PSI.
Stephen M. Lilly, a director of the Company, is a principal shareholder of PSI.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company that could have been obtained
from unaffiliated parties. All future transactions, including loans and
compensation between the Company and its officers, directors, principal
shareholders and affiliates, will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
36
<PAGE> 37
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 31, 1998 and as
adjusted to reflect the sale of Common Stock being offered by the Company
hereby, for (i) each person known by the Company to own beneficially 5% or more
of the Common Stock, (ii) each director and executive officer of the Company,
and (iii) all directors and executive officers of the Company as a group. Except
pursuant to applicable community property laws and except as otherwise
indicated, each shareholder identified in the table possesses sole voting and
investment power with respect to his or her shares.
<TABLE>
<CAPTION>
Percentage Owned
Number of Before After
Name Shares Offering Offering
--------------- -------------- -----------
<S> <C> <C> <C>
John T. White (1) 1,144,000 26.00% 20.43%
Richard D. Cox (2) 1,056,000 24.00% 18.86%
W. Chris Pumpelly (1) 847,000 19.25% 15.13%
Joseph E. Pate (3) 627,000 14.25% 11.20%
Diana Peterson (4) 440,000 10.00% 7.86%
C. Thomas Daulton (5) 286,000 6.50% 5.11%
Gary H. Homsey (1) - - -
Michael Short (1) - - -
Russell V. Oesch (1) - - -
Greg White (1) - - -
Stephen M. Lilly (6) - - -
All directors, and executive
officers as a group (ten
persons) 3,960,000 90.00% 70.71%
</TABLE>
- ----------------------------
(1) The address of Messrs. John T. White, Pumpelly, Homsey, Short, Oesch and
Greg White is 3012 Fairmount, Dallas, Texas 75201.
(2) The address of Mr. Cox is 300 Crescent Court, Suite 1400, Dallas, Texas
75201.
(3) The address of Mr. Pate is 1409 San Rafael Dallas, Texas 75218.
(4) The address of Mrs. Peterson is 111 E. Broadway, #1080, Salt Lake City,
Utah 84111.
(5) The address of Mr. Daulton is 1901 N. Akard, Dallas, Texas 75201.
(6) The address of Mr. Lilly is 1000 Holcomb Woods Parkway, Suite 4408,
Roswell, Georgia 30076.
37
<PAGE> 38
DESCRIPTION OF SECURITIES
CAPITAL STOCK OF THE COMPANY
Performance Printing's authorized capital stock consists of 20,000,000
shares of Common Stock, $.01 par value, and 3,000,000 shares of preferred stock,
$1.00 par value per share ("Preferred Stock").
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The
Shares and Warrants included in the Units may be not be traded separately until
, 1999 (180 days from the date of this Prospectus) unless earlier separated upon
three days notice from the Representatives to the Company. The Warrants may not
be exercised until they are separated from the Units.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which means
that the holders of a plurality of the shares voting for election of directors
can elect all members of the Board of Directors. Dividends may be paid ratably
to holders of Common Stock when and if declared by the Board of Directors out of
funds legally available therefor. Upon liquidation or dissolution of the
Company, the holders of Common Stock will be entitled to share ratably in the
assets of the Company legally available for distribution to shareholders after
payment of all liabilities and the liquidation preferences of any outstanding
Preferred Stock. The provisions of the Articles of Incorporation relating to
share structure, preferences, privileges, restrictions and rights may be amended
only upon the affirmative vote of 66 2/3 percent of the outstanding voting stock
of the Company.
The holders of Common Stock have no preemptive or conversion rights or
other subscription rights and are not subject to redemption or sinking fund
provisions or to calls or assessments by the Company. The shares of Common Stock
offered hereby will be, when issued and paid for, fully paid and not liable for
call or assessment.
At March 31, 1998, the Company had six shareholders.
PREFERRED STOCK
The Company may issue Preferred Stock in one or more series and the
Board of Directors may designate the dividend rate, voting rights and other
rights, preferences and restrictions of each series. It is not possible to state
the actual effect of the issuance of any shares of Preferred Stock upon the
rights of holders of the Common Stock until the Board of Directors determines
the specific rights of the holders of such Preferred Stock. However, the effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, impairing the liquidation rights
of the Common Stock and delaying or preventing a change in control of the
Company without further action by the shareholders. The Company presently has no
plans to issue any shares of Preferred Stock.
WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated the date of this Prospectus (the "Warrant Agreement"), between the Company
and Securities Transfer Corporation, Dallas, Texas, as Warrant Agent (the
"Warrant Agent"). The following discussion of certain terms and provisions of
the Warrants is qualified in its entirety by reference to the Warrant Agreement.
A form of the certificate representing the Warrants which forms a part of the
Warrant Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
38
<PAGE> 39
Each Warrant entitles the registered holder to purchase one share of
Common Stock. The Warrants are exercisable at a price of $7.50, which exercise
price has been arbitrarily determined by the Company and the Representatives,
subject to certain adjustments. The Warrants are entitled to the benefit of
adjustments in their exercise prices and in the number of shares of Common Stock
or other securities deliverable upon the exercise thereof in the event of a
stock dividend, stock split, reclassification, reorganization, consolidation or
merger.
The Warrants may be exercised at any time after separation from the
Units until the close of business five years from the date hereof, unless such
period is extended by the Company. After the expiration date, Warrant holders
shall have no further rights. Warrants may be exercised by surrendering the
certificate evidencing such Warrant, with the form of election to purchase on
the reverse side of such certificate properly completed and executed, together
with payment of the exercise price and any transfer tax, to the Warrant Agent.
If less than all of the Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning six
months from the date hereof to redeem the Warrants, at a price of $.05 per
Warrant, by written notice to the registered holders thereof, mailed not less
than 30 nor more than 60 days prior to the Redemption Date. The Company may
exercise this right only if the closing bid price for the Common Stock for seven
trading days during a 10 consecutive trading day period ending no more than 15
days prior to the date that the notice of redemption is given, equals or exceeds
$10, subject to adjustment. If the Company exercises its right to call the
Warrants for redemption, such Warrants may still be exercised until the close of
business on the day immediately preceding the Redemption Date. If any Warrant
called for redemption is not exercised by such time, it will cease to be
exercisable, and the holder thereof will be entitled only to the repurchase
price. Notice of redemption will be mailed to all holders of Warrants of record
at least 30 days, but not more than 60 days, before the Redemption Date. The
foregoing notwithstanding, the Company may not call the Warrants at any time
that a current registration statement under the Act is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of the Representatives.
The Warrant Agreement permits the Company and the Warrant Agent without
the consent of Warrant holders to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent may also supplement or
amend the Warrant Agreement in any other respect with the written consent of
holders of not less than a majority in the number of the Warrants then
outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed, or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Warrants, and the
issuance of such shares to the holder must be registered, qualified or exempt
under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Warrants prior to the exercise of such Warrants
and will deliver a prospectus with respect to such securities to all holders
thereof as required by Section 10(a)(3) of the Act. See "Risk Factors -
Arbitrary Offering Price and Exercise of Warrants."
TRANSFER AGENT AND REGISTRAR; WARRANT AGENT
The Transfer Agent and Registrar and Warrant Agent for the Company's
Units, Common Stock and Warrants is Securities Transfer Corporation, Dallas,
Texas.
39
<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,600,000
shares of Common Stock outstanding. Of these shares, the 1,200,000 shares sold
to the public hereby will be freely tradable without restrictions or
registration under the Act (1,380,000 if the Representatives' Over-allotment
Option is exercised in full), except that any shares purchased by "affiliates"
of the Company, as that term is defined in Rule 144 ("Rule 144") under the Act
("Affiliates") may generally be sold only within the limitations of Rule 144
described below. An aggregate of 1,200,000 shares will be issued upon the
exercise of the Warrants. The Company has agreed to register these shares under
the Act in order to permit the resale of such shares in the open market from
time to time and has agreed to maintain the effectiveness of such registration.
Following the sale of such shares pursuant to an effective registration
statement filed in connection with such registration, these shares shall be
freely tradable. The Company, the Company's executive officers and directors,
and shareholders of the Company prior to the Offering have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable for or convertible into Common Stock for a period of one
year after the date of this Prospectus without the prior written consent of the
Representatives, except that the Representatives have agreed to permit the sale
of 18,000 shares prior to such one year period by the donee of a charitable gift
of a director of the Company.
A total of 4,400,000 shares owned by the Company's shareholders prior
to this Offering (the "Restricted Shares") will be "restricted shares" within
the meaning of the Act and may be publicly sold only if registered under the Act
or sold in accordance with an applicable exemption from registration, such as
those provided by Rule 144 under the Act. In general, under Rule 144, as
currently in effect, a person (or persons whose shares are aggregated) is
entitled to sell restricted shares if at least one year has passed since the
later of the date such shares were acquired from the Company or any affiliate of
the Company. Rule 144 provides that within any three-month period such person
may sell only up to the greater of one percent (1%) of the then outstanding
shares of the Company's Common Stock (approximately 56,000 shares following
completion of this Offering) or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks immediately preceding the
date on which the notice of the sale is filed with the Commission. Sales
pursuant to Rule 144 are subject to certain other requirements relating to
manner of sale, notice of sale and availability of current public information.
Any person who has not been an affiliate of the Company for a period of three
months preceding a sale of restricted shares is entitled to sell such shares
under Rule 144 without regard to such limitations if at least two years have
passed since the later of the date such shares were acquired from the Company or
any affiliate of the Company. Shares held by persons who are deemed to be
affiliates of the Company are subject to such volume limitations regardless of
how long they have been owned or how they were acquired. The foregoing is a
brief summary of certain provisions of Rule 144 and is not intended to be a
complete description thereof. The "restricted shares" held by the current
shareholders of the Company have been held longer than two years and are
qualified for sale pursuant to Rule 144 beginning 90 days after the date of this
Prospectus.
The Company intends to file a registration statement under the Act to
register all shares of Common Stock issuable pursuant to the Company's Stock
Option Plan. See "Management - Stock Option Plan." Subject to the completion of
the one-year period described above, shares of Common Stock issued after the
effective date of such registration statement upon the exercise of awards issued
under such plan generally will be eligible for sale in the public market.
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the Company's
securities and the Company's ability to raise additional capital by occurring at
a time when it would be beneficial for the Company to sell securities.
40
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation and
Nutmeg Securities, Ltd. are acting as Representatives, have severally agreed to
purchase from the Company an aggregate of 1,200,000 Units. The number of Units
which each Underwriter has agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
---- ---------
<S> <C>
First London Securities Corporation..................
Nutmeg Securities, Ltd...............................
---------
TOTAL 1,200,000
=========
</TABLE>
The Units are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Units offered by this Prospectus, if
any are purchased.
The Company has been advised by the Representatives that the
Underwriters propose initially to offer the Units offered hereby to the public
at the offering price set forth on the cover page of this Prospectus. The
Representatives have advised the Company that the Underwriters propose to offer
the Units through members of the NASD, and may allow a concession, in their
discretion, to certain dealers who are members of the NASD and who agree to sell
the Units in conformity with the NASD Conduct Rules. Such concessions shall not
exceed the amount of the underwriting discount that the Underwriters are to
receive. The public offering price, concession and reallowance to dealers will
not be reduced by the Representatives until after the Offering is complete. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted to the Representatives an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an additional
180,000 Units at the public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Representatives may exercise the
Over-allotment Option solely to cover over-allotments in the sale of the Units
being offered by this Prospectus.
Officers and directors of the Company may introduce the Representatives
to persons to consider the Offering and purchase Units either through the
Representatives, other Underwriters, or through participating dealers. The
Underwriters have not reserved any Units for sale to persons introduced to the
Underwriters by officers and directors. In this connection, officers and
directors will not receive any commissions or any other compensation.
The Company has agreed to pay the Representatives a commission of 10%
of the gross proceeds of the offering (the "Underwriting Discount"), including
the gross proceeds from the sale of the Over-allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representatives a non-accountable
expense allowance of two percent (2%) of the gross proceeds of this Offering,
including proceeds from any Units purchased pursuant to the Over-allotment
Option. The Representatives' expenses in excess of the non-accountable expense
allowance will be paid by the Representatives. To the extent that the expenses
of the Representatives are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation to
the Representatives. The Company has also agreed to pay the Representatives a
fee of equal to 5% of the gross proceeds received by the Company from the
exercise of the Warrants and 5% of the
41
<PAGE> 42
aggregate redemption price for Warrants redeemed. Such fee will be paid to the
Representatives no earlier than 12 months after the effective date of this
Offering. Additionally, the Representatives or their designees must be
designated in writing by the Warrant holders as having solicited the Warrant in
order to receive the fee and such fee shall not be paid with respect to Warrants
held in a discretionary account without prior specific written approval of such
exercise by the discretionary account holder. The Representatives have informed
the Company that they do not expect sales to discretionary accounts to exceed 5%
of the total number of securities offered by the Company hereby.
The Representatives shall have the right to nominate an Advisory
Director to the Company's Board of Directors. The Advisory Director will have
the same privileges as a normal Director, including equal compensation, but will
not have the right to vote on Board issues.
Prior to the Offering, there has been no public market for the Units,
the Shares or Warrants of the Company. Consequently, the initial public offering
price for the Units, and the terms of the Warrants (including the exercise price
of the Warrants), have been determined by negotiation between the Company and
the Representatives. Among the factors considered in determining the public
offering price were the history of, and the prospect for, the Company's
business, an assessment of the Company's management, its past and present
operations, the Company's development and the general condition of the
securities market at the time of the Offering. The initial public offering price
does not necessarily bear any relationship to the Company's assets, book value,
earnings or other established criteria of value. Such price is subject to change
as a result of market conditions and other factors, and no assurance can be
given that a public market for the Units, the Shares or Warrants will develop
after the close of the Offering, or if a public market in fact develops, that
such public market will be sustained, or that the Securities can be resold at
any time at the offering or any other price. See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representatives or persons related to the Representatives, for nominal
consideration, a Representatives' Warrant to purchase up to 120,000 Shares and
up to 120,000 Warrants (the "Underlying Warrants"). The Representatives' Warrant
will be exercisable for a four-year period commencing one year from the date of
this Prospectus at an exercise price of $6.00 per Share and $0.15 per Warrant,
subject to adjustment. Each Underlying Warrant will be exercisable for a four
year period commencing one year from the date of this Prospectus at an exercise
price of $7.50 per share of Common Stock. The number of Shares and Warrants
subject to the Representatives' Warrant will not exceed 10% of the Shares and
Warrants underlying the Units offered hereby to the public, excluding the
securities subject to the Representatives' Warrant. The Representatives'
Warrants will not be transferable for one year from the date of this Prospectus,
except (i) to officers of the Representatives or to officers and partners of the
other Underwriters or selected dealers participating in this Offering; (ii) by
will; or (iii) by operation of law.
The Representatives' Warrant contains provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representatives' Warrant contains net issuance provisions
permitting the holders thereof to elect to exercise the Representatives' Warrant
in whole or in part and instruct the Company to withhold from the securities
issuable upon exercise a number of securities, valued at the current fair market
value on the date of exercise, to pay the exercise price. Such net exercise
provision has the effect of requiring the Company to issue shares of Common
Stock without a corresponding increase in capital. A net exercise of the
Representatives' Warrant will have the same dilutive effect on the interests of
the Company's shareholders as will a cash exercise. The Representatives' Warrant
does not entitle the holders thereof to any rights as a shareholder of the
Company until such Representatives' Warrant is exercised and shares of Common
Stock are purchased thereunder.
The Company has granted to the holders of the Representatives' Warrant
certain rights with respect to registration of the Shares, the Underlying
Warrants and the Common Stock issuable upon exercise of the Representatives'
Warrant (the "Registrable Securities") under the Act. For a period of four years
commencing one year following the date of this Prospectus, the holders
representing more than 50% of the Registrable Securities have the right at the
Representatives' or holders' expense to require the Company to prepare and file
one registration statement with respect to the Registrable Securities. In
addition, subject to certain limitations, in
42
<PAGE> 43
the event the Company proposes to register any of its securities under the Act
during the seven year period following the date of this Prospectus, the holders
of the Registrable Securities are entitled to notice of such registration and
may elect to include the Registrable Securities held by them in such
registration statement at the sole expense of the Company.
In connection with the Offering, the Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulations M, pursuant to which such persons may bid for or
purchase Units for the purpose of stabilizing their respective market prices.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Units in connection with the Offering than they are
committed to purchase from the Company, and in such case may purchase Units in
the open market following completion of the Offering to cover all or a portion
of such short position. The Underwriters may also cover all or a portion of such
short position by exercising the Over-allotment Option. In addition, the
Underwriters may impose "penalty bids" under contractual arrangements with the
Underwriters whereby they may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Units that are distributed in the Offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may result in the
maintenance of the price of the Units at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken they may be discontinued at
any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement.
See "Available Information."
LEGAL MATTERS
Legal matters in connection with the Common Stock and Warrants being
offered hereby will be passed upon for the Company by Garza & Staples, P.C.,
Dallas, Texas. Certain legal matters will be passed upon for the Underwriters by
Crouch & Hallett, L.L.P.
EXPERTS
The financial statements of the Company as of December 31, 1997 and
1996, and for each of the two years in the periods then ended, included in this
Prospectus have been audited by Travis Wolff & Company, LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
43
<PAGE> 44
GLOSSARY
The following terms used in this Prospectus have the specialized
meanings in the printing industry set forth below:
"Conventional Sheetfed Offset Printing": Offset printing of sheets of paper
using inks and coatings that cure when exposed through oxidation.
"Large-Format Digital Printing": Digital printing of large sheets (in excess of
28" x 40") of paper, plastics and other Substrates. Digital printing is printing
by plateless imaging systems that are imaged by digital data from prepress
systems.
"Large-Format Screen Printing": Screen printing of large sheets (in excess of
28" x 40") of paper, plastics and other Substrates. Screen printing is printing
by use of fine-meshed screens through which ink is squeezed onto the printing
substrate.
"Off-line Special Coatings": Applying coatings to printed sheets on a coating
machine after the sheets have been printed on a printed press. Special coatings
are those which are not commonly applied by a printing press, such as coatings
which are: UV (applied to sheets printed using conventional offset printing),
glow-in-the-dark, sealed scent and "thermochromatic" (change colors when exposed
to heat).
"UV Sheetfed Offset Printing": Offset printing of sheets of paper, plastics and
other Substrates using inks and coatings which cure when exposed to ultraviolet
light. Offset printing is printing by use of a blanket cylinder to transfer an
image from the image carrier to the substrate.
"Offset Printing": Printing by use of a blanket cylinder to transfer an image
from the image carrier to the Substrate.
"PETG": Polyethelene terephtalate-glycol a petroleum based Substrates.
"Plastic Forming": Forming of plastic Substrates (both printed and unprinted)
using heat and vacuums.
"Substrates": The material on which the printing is placed.
"UV Curing of Inks and Coatings": Curing of inks and coatings on sheets of
paper, plastics and other Substrates using inks and coatings which cure when
exposed to ultraviolet light.
"UV sheetfed Offset Printing": Offset printing of sheets of paper, plastics and
other Substrates using inks and coatings which cure when exposed to ultraviolet
light.
44
<PAGE> 45
PERFORMANCE PRINTING CORPORATION
Table of Contents
<TABLE>
<CAPTION>
Page
-----------------
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4 to F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7 to F-8
Notes to Financial Statements F-9 to F-17
</TABLE>
F - 1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Performance Printing Corporation
We have audited the accompanying balance sheets of Performance Printing
Corporation (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Performance Printing
Corporation as of December 31, 1997 and 1996, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.
Travis Wolff & Company, L.L.P.
Dallas, Texas
January 16, 1998, except for Note 12,
as to which the date is April 30, 1998
F-2
<PAGE> 47
PERFORMANCE PRINTING CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1998 1997 1996
(Unaudited)
----------- ------------ ------------
Assets
<S> <C> <C> <C>
Current assets:
Cash $ 37,438 $ 762,501 $ 808,077
Accounts receivable, net 4,208,649 4,387,407 3,086,984
Notes receivable 22,157 55,091 189,573
Inventories 1,029,492 613,598 515,715
Prepaid and other current assets 87,584 71,002 84,310
---------- ---------- ----------
Total current assets 5,385,320 5,889,599 4,684,659
---------- ---------- ----------
Property and equipment, net 3,916,505 3,643,937 3,933,257
---------- ---------- ----------
Other assets:
Deferred offering costs 128,223 75,000 --
Notes receivable-long term 70,220 73,395 240,591
Equity method investment 108,629 18,333 65,206
Deposits and other assets 89,298 122,091 121,734
---------- ---------- ----------
396,370 288,819 427,531
---------- ---------- ----------
Total assets $9,698,195 $9,822,355 $9,045,447
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term note payable $2,021,786 $2,001,610 $2,419,670
Current portion of long-term debt and
debenture notes 611,166 594,465 622,685
Accounts payable 1,669,769 2,067,438 1,641,260
Accrued liabilities 1,138,812 729,618 480,996
Deferred income 213,293 201,433 39,096
---------- ---------- ----------
Total current liabilities 5,654,826 5,594,564 5,203,707
---------- ---------- ----------
Long-term liabilities:
Long-term debt 2,735,066 2,597,002 2,738,256
Debenture notes payable (net of discount for the
issuance of stock warrants of $119,022,
$139,074 and $100,415, respectively)
238,872 244,481 244,481
---------- ---------- ----------
Total long-term liabilities 2,973,938 2,841,483 2,914,860
Commitments and contingencies (Notes 5, 6, 9, 10
and 11)
Stockholders' equity (Notes 1 and 12):
Common stock; 20,000,000 shares authorized;
4,400,000 issued and outstanding; par value
of $.01 per share 44,000 44,000 44,000
Preferred stock; 3,000,000 shares authorized;
no shares issued and outstanding; par value
of $1.00 per share -- -- --
Additional paid-in capital 641,824 641,824 603,165
Retained earnings 383,607 700,484 279,715
---------- ---------- ----------
1,069,431 1,386,308 926,880
---------- ---------- ----------
Total liabilities and stockholders' equity $9,698,195 $9,822,355 $9,045,447
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE> 48
PERFORMANCE PRINTING CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Printing sales, net of returns and
allowances of $59,273 and
$51,838 in 1997 and 1996,
respectively $ 4,629,824 $ 3,939,448 $ 20,114,549 $ 15,715,395
Cost of goods sold:
Materials and outside services 1,748,662 1,459,581 7,639,665 5,701,008
Other costs 1,945,528 1,599,374 7,826,819 6,400,978
------------ ------------ ------------ ------------
3,694,190 3,058,955 15,466,484 12,101,986
------------ ------------ ------------ ------------
Gross profit 935,634 880,493 4,648,065 3,613,409
Selling, general and administrative
expenses 752,731 720,056 3,269,575 2,872,913
Provision for doubtful accounts 72,000 70,500 394,115 222,322
------------ ------------ ------------ ------------
Income from operations 110,903 89,937 984,375 518,174
------------ ------------ ------------ ------------
Other income (expense):
Gain (loss) on equity method
investment 90,296 44,544 (46,873) 141,024
Interest expense (163,826) (144,256) (587,548) (610,310)
Interest and other income 36,414 5,958 10,088 31,995
Gain on sale of property and
equipment 9,336 -- 191,423 90,727
------------ ------------ ------------ ------------
(27,780) (93,754) (432,910) (346,564)
------------ ------------ ------------ ------------
Income (loss) before extraordinary gain 83,123 (3,817) 551,465 171,610
Extraordinary gain from
extinguishment of debt -- -- -- 41,750
------------ ------------ ------------ ------------
Net income (loss) $ 83,123 $ (3,817) $ 551,465 $ 213,360
============ ============ ============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 49
PERFORMANCE PRINTING CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Pro forma unaudited income tax
information (Note 1):
Income (loss) before extraordinary $ 83,123 $ (3,817) $ 551,465 $ 171,610
gain
Pro forma provision for federal
income taxes 29,554 -- 189,638 67,159
------------ ------------ ------------ ------------
Pro forma income (loss) before
extraordinary gain 53,569 (3,817) 361,827 104,451
Pro forma extraordinary gain
from extinguishment of debt
(net of federal income taxes
of $14,195 for 1996) -- -- -- 27,555
------------ ------------ ------------ ------------
Pro forma net income (loss) $ 53,569 $ (3,817) $ 361,827 $ 132,006
============ ============ ============ ============
Pro forma earnings per share
information (Note 1):
Basic earnings per common share:
Income before extraordinary
gain $ 0.01 $ 0.00 $ 0.08 $ 0.02
Extraordinary gain from
extinguishment of debt -- -- -- 0.01
------------ ------------ ------------ ------------
Net income $ 0.01 $ 0.00 $ 0.08 $ 0.03
============ ============ ============ ============
Diluted earnings per common
share:
Income before extraordinary
gain $ 0.01 $ 0.00 $ 0.08 $ 0.02
Extraordinary gain from
extinguishment of debt -- -- -- 0.01
------------ ------------ ------------ ------------
Net income $ 0.01 $ 0.00 $ 0.08 $ 0.03
============ ============ ============ ============
Weighted-average common shares:
Basic 4,400,000 4,400,000 4,400,000 4,400,000
Adjusted common shares effect
of dilutive warrants 161,480 77,000 161,480 77,000
------------ ------------ ------------ ------------
Diluted 4,561,480 4,477,000 4,561,480 4,477,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 50
PERFORMANCE PRINTING CORPORATION
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-In Capital Earnings Total
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 44,000 $ 502,750 $ 66,355 $ 613,105
Issuance of stock warrants -- 100,415 -- 100,415
Net Income -- -- 213,360 213,360
----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 44,000 $ 603,165 $ 279,715 $ 926,880
Issuance of stock warrants -- 38,659 -- 38,659
Net Income -- -- 551,465 551,465
Stockholders' Distributions -- -- (130,696) (130,696)
----------- ----------- ----------- -----------
Balance, December 31, 1997 $ 44,000 $ 641,824 $ 700,484 $ 1,386,308
Net Income (Unaudited) -- -- 83,123 83,123
Stockholders' distributions
(Unaudited) (400,000) (400,000)
----------- ----------- ----------- -----------
Balance, March 31, 1998
(Unaudited) $ 44,000 $ 641,824 $ 383,607 $ 1,069,431
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 51
PERFORMANCE PRINTING CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, 1998 March 31, 1997 December 31, December 31,
(Unaudited) (Unaudited) 1997 1996
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 83,123 $ (3,817) $ 551,465 $ 213,360
------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 166,981 196,556 745,047 805,342
Amortization of discount on debentures 20,052 - - -
Provision for doubtful accounts 72,000 70,500 394,115 222,322
Gain on sale of property and equipment (9,336) - (191,423) (90,727)
(Gain) loss on equity method investment (90,296) (44,544) 46,873 (141,024)
Gain on extinguishment of debt - - - (41,750)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 106,758 (21,453) (1,716,989) (338,081)
(Increase) decrease in inventories (415,894) (107,966) (97,883) 84,201
(Increase) decrease in prepaid and
other current assets (16,582) (16,552) 14,627 (72,544)
(Increase) decrease in deposits 32,793 8,293 (14,426) 9,455
Increase (decrease) in accounts payable (397,669) 428,397 426,178 (144,975)
Increase (decrease) in accrued liabilities 409,194 (12,795) 248,622 2,472
Increase (decrease) in deferred income 11,860 11,446 162,337 (22,296)
------------ ------------ ------------ ------------
(110,139) 511,882 17,078 272,395
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities (27,016) 508,065 568,543 485,755
------------ ------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 16,000 - 550,000 150,000
Purchases of property and equipment (176,213) (22,839) (195,597) (78,121)
Collections of notes receivable 3,175 296,032 441,509 303,083
(Increase) decrease in notes receivable 32,934 (99,771) (139,831) (138,456)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities (124,104) 173,422 656,081 236,506
Cash flows from financing activities: ------------ ------------ ------------ ------------
Increase in deferred offering costs (53,223) - (75,000) -
Proceeds from (payments on) short-term
note payable 20,176 (1,263,370) (418,060) 342,924
Proceeds from issuance of long-term debt - - 242,623 590,323
Principal payments on long-term debt (118,647) (136,722) (1,032,078) (1,131,380)
Payments made on debt issue costs - - - (47,794)
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements
F-7
<PAGE> 52
PERFORMANCE PRINTING CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended Year Ended Year Ended
March 31, March 31, December December
1998 1997 31, 1997 31, 1996
(Unaudited) (Unaudited)
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds on issuance of debenture notes
payable - - 200,000 350,000
Principal payments on debenture notes
payable (22,249) (13,121) (56,989) (18,257)
Stockholders' distributions (400,000) - (130,696) -
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (573,943) (1,413,213) (1,270,200) 85,816
------------ ------------ ------------ ------------
Increase (decrease) in cash $ (725,063) $ (731,726) $ (45,576) $ 808,077
Cash, beginning of period 762,501 808,077 808,077 -
------------ ------------ ------------ ------------
Cash, end of period $ 37,438 $ 76,361 $ 762,501 $ 808,077
============ ============ ============ ============
Supplemental disclosure of cash flow
information:
Interest paid $ 155,572 $ 138,568 $ 575,559 $ 633,809
Supplemental schedule of noncash investing
and financing activities:
Equipment purchases financed by notes
payable $ 270,000 $ - $ 605,957 $ 154,625
Notes receivable paid through issuance of
of debenture note $ - $ - $ 22,451 $ -
Debt paid off through refinancing $ - $ - $ 1,787,668 $ 973,147
Building improvements acquired to satisfy
note receivable $ - $ - $ - $ 339,115
Equipment sold on accounts receivable $ - $ - $ - $ 30,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 53
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies
Organization
Performance Printing Corporation (the "Company") was incorporated under the laws
of the State of Texas on February 12, 1992. The Company prints state of the art
advertising on various types of paper, plastics and clear films for customers
located throughout the United States.
Cash and cash equivalents
The Company maintains its cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant risk on
cash. Cash in banks, based on the bank balances exceeded the federally insured
limits by $1,250,000 and $1,130,000 at December 31, 1997 and 1996, respectively.
The Company considers all investments with an original maturity of three months
or less on their acquisition date to be cash equivalents.
Allowance for doubtful accounts
The allowance for doubtful accounts is based on historical bad debt experience
and an evaluation of the aging of the accounts receivable. For the years ended
December 31, 1997 and 1996, respectively, the allowance for doubtful accounts
totaled $229,818 and $183,135.
Inventories
Inventories are comprised of raw materials and work-in-process and are valued at
the lower of cost (cost being determined by the first-in, first-out method) or
market.
Property and equipment
Property and equipment are recorded at cost and depreciated over their estimated
useful lives using the straight-line method. Leasehold improvements are
amortized using the straight-line method over their useful lives or their
respective lease term, whichever is shorter. Depreciation expense was $732,297
and $781,800, for the years ended December 31, 1997 and 1996, respectively.
The Company continually reviews property and equipment to determine that the
carrying values have not been impaired. As of December 31, 1997 and 1996, the
Company expects these assets to be fully recoverable.
Deferred offering costs
If the offering is not completed, such costs will be expensed. If the offering
is completed, such costs will be recorded as a reduction of the net proceeds of
the offering.
Deferred income
Deferred income consists primarily of payments received in advance from
customers. The Company recognizes revenue as the goods and services are
provided.
F-9
<PAGE> 54
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies (Continued)
Federal income taxes
The shareholders of the Company have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, whereby they are to include their
respective shares of the Company's income or loss in their individual income tax
returns. Therefore, no provision for Federal income taxes has been provided in
the financial statements.
Pro forma income taxes and earnings per share
The unaudited pro forma effects of income tax expense are calculated as if the
Company had been a C corporation with an effective tax rate of 34% for the years
ended December 31, 1997 and 1996.
The Company has approved a stock split effective April 30, 1998. All share data
has been retroactively adjusted for the effect of the stock split.
Concentrations of risk
The Company's customers are not concentrated in any geographic location.
However, during 1997, thirty-four percent of the Company's revenue was
attributable to five customers. Of these five, sales to one customer accounted
for 12.5% of total revenue. These customers have balances included in accounts
receivable of approximately $1,865,000. The Company does not require collateral
or other security to support the accounts receivable subject to credit risk.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the financial statements at, and during the reporting periods. Actual
results could differ from these estimates.
Fair value of financial instruments
The carrying value of cash, accounts receivable and payable, notes receivable,
and accrued liabilities approximate fair value due to the short-term maturities
of these assets and liabilities. The fair value of the short-term note payable,
the long-term debt, including the current portion, and the debenture notes
payable approximates carrying value and is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same maturities.
Reclassification
Certain reclassifications have been made to 1996 balances to conform to the 1997
presentation.
F-10
<PAGE> 55
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies (Continued)
Interim financial data (Unaudited)
The balance sheet as of March 31, 1998, the accompanying statements of
operations for the three months ended March 31, 1998 and 1997, statements of
stockholders' equity for the three months ended March 31, 1998 and statements of
cash flows for the three months ended March 31, 1998 and 1997, have been
prepared by the Company without an audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary in order to make the financial statements not misleading have been
made. Results for interim periods should not be considered as indicative of
results for a full year.
Note 2 - Inventories
The principal components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Raw materials $ 363,461 $ 392,316
Work-in-process 250,137 123,399
----------------- ----------------
Total inventories $ 613,598 $ 515,715
================= ================
</TABLE>
Note 3 - Property and Equipment
The principal components of property and equipment are as follows at
December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- -----------------------------------
Estimated Estimated
Service Service
Amounts Lives Amounts Lives
---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Machinery and equipment $ 3,959,512 1-10 years $ 4,528,553 1-10 years
Furniture and fixtures 615,994 1-7 years 603,332 1-7 years
Leasehold improvements 575,928 1-6 years 565,579 1-6 years
Vehicles 204,163 3-4 years 170,889 3-4 years
Building and improvements 1,514,948 31 years 1,414,442 31 years
Land 400,000 400,000
------------ ------------
7,270,545 7,682,795
Less accumulated
depreciation (3,626,608) (3,749,538)
and amortization
------------ ------------
$ 3,643,937 $ 3,933,257
============ ============
</TABLE>
F-11
<PAGE> 56
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 4 - Short-term Note Payable
Amounts drawn on a $3,500,000 revolving line of credit totaled $2,001,610 and
$2,419,670 at December 31, 1997 and 1996, respectively, bearing interest at the
bank's prime rate (8.5%) plus 1%. The revolving line of credit is guaranteed by
a stockholder and is collateralized by all of the Company's assets. The credit
arrangement obligates the Company to certain positive and negative covenants
such as the maintenance of financial ratios, defined equity levels and
limitations on capital expenditures and officers' salaries. At December 31, 1997
and 1996, the Company was in compliance with positive and negative covenants.
Note 5 - Long-term Debt
During the year ended December 31, 1997, the Company refinanced its $1,260,000
interim note payable for its building with permanent financing. The permanent
financing consists of three notes issued by the original lender totaling
$1,344,000. The repayment terms are noted below.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Note payable maturing March 2017, payable in
monthly installments of principal and
interest of $6,989, bearing interest at
10.25%, collateralized by the deed of trust
for the building. $ 688,135 $ -
Note payable maturing June 2017, payable in
monthly installments of principal and
interest of $4,580, bearing interest at
7.267%, collateralized by the deed of trust
for the building. 571,133 -
Note payable maturing April 2002, payable in
monthly installments of principal and
interest of $1,397, bearing interest at prime
(8.5%) plus 2%, collateralized by the deed of
trust for the building. 57,757 -
Note payable maturing in October 2016,
payable in monthly installments of principal
and interest of $12,368, commencing in 1997,
bearing interest at prime (8.5%) plus 2%,
collateralized by the deed of trust for the
building and guaranteed by certain
stockholders. Note was refinanced during
1997. - 1,260,000
Note payable maturing in April 2002, payable
in monthly installments of principal and
interest of $17,118, bearing interest at
10.25%, collateralized by machinery and
equipment. 719,896 -
Note payable maturing in August 2002, payable
in monthly installments of principal and
interest of $4,781, bearing interest at 10%,
collateralized by machinery and equipment. 213,786 -
</TABLE>
F-12
<PAGE> 57
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 5 - Long-term Debt (Continued)
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Note payable maturing in July 2002, payable
in monthly installments of principal and
interest of $6,325, bearing interest at
9.75%, collateralized by machinery and
equipment. 243,402 -
Note payable maturing in 2001, payable in
monthly installments of principal and
interest of $19,728, bearing interest at
9.5%, collateralized by machinery and
equipment. 303,394 844,933
Note payable maturing in 1999, payable in
monthly installments of principal and
interest of $11,631, bearing interest at 11%,
collateralized by machinery and equipment. 263,660 394,147
Notes payable maturing at various dates
through 2002, payable in monthly installments
of principal and interest of $1,405, bearing
interest between 8.5% and 9.65%,
collateralized by vehicles. 39,105 69,552
Notes payable maturing in 1998, payable in
monthly installments of principal and
interest of $3,429, bearing interest at
9.75%, collateralized by machinery and
equipment. Notes were refinanced during 1997. - 51,521
Notes payable maturing various dates through
1998, payable in monthly installments of
principal and interest of $4,176, bearing
interest at 11%, collateralized by machinery
and equipment and guaranteed by certain
stockholders. Notes were refinanced during
1997. - 63,937
Notes payable maturing at various dates
through 1999, payable in monthly installments
of principal and interest of $14,950, bearing
interest at rates ranging from 9.25% through
10.875%, collateralized by machinery and
equipment. Notes were refinanced during 1997. -
417,127
Unsecured subordinated debt to stockholder
maturing in 1997, interest only payments at
10%. Principal and any remaining unpaid
interest was paid through the issuance of a
debenture note payable during 1997. - 205,000
------------- ---------------
3,100,268 3,306,217
Less current maturities of long-term debt 503,266 567,961
------------- ---------------
$ 2,597,002 $ 2,738,256
============= ===============
</TABLE>
F-13
<PAGE> 58
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 5 - Long-term Debt (Continued)
Aggregate principal maturities of long-term debt are as follows:
Years ended December 31:
<TABLE>
<S> <C>
1998 $ 503,266
1999 $ 531,178
2000 $ 439,856
2001 $ 408,860
2002 $ 176,529
</TABLE>
Note 6 - Debenture Notes Payable
In December 1997 and July 1996, respectively, the Company issued debenture notes
payable to certain officers, directors and other related parties totaling
$200,000 and $350,000. The debentures bear interest at 14.0% per annum and
provide for monthly payments of principal and interest of $12,800, commencing in
August 1996 and continuing through December 2000. The Company has pledged as
collateral its 51% ownership interest in Performance Packaging, L.C. (see Note
10) together with all future profits therefrom for the 1996 issued debenture
notes payable. The 1997 issued debenture notes payable are unsecured.
Aggregate principal maturities of debenture notes payable are as follows:
Years ended December 31:
<TABLE>
<S> <C>
1998 $ 91,199
1999 $ 250,439
2000 $ 133,116
</TABLE>
The Company issued stock warrants to the debenture holders as additional
consideration. The warrants issued in relation to the 1996 debentures make
available 3.5% of the then outstanding stock of the Company and become
exercisable in June 1999. The warrants issued in relation to the 1997 debentures
make available 2.0% of the then outstanding stock of the Company and become
exercisable in December 2000. The Company may cancel the debenture holders'
rights to purchase the warrant stock at any time prior to June 1999 and December
2000 for debentures issued in 1996 and 1997, respectively. The cancellation fees
are recorded at the fair value of the warrants and are reflected as a discount
on the debenture notes payable. The discount will be amortized to interest
expense over the life of the debenture notes payable. The cancellation fees
under these agreements would be assessed as follows:
<TABLE>
<S> <C>
May 1998 $ 139,074
May 1999 $ 215,892
May 2000 $ 90,579
</TABLE>
F-14
<PAGE> 59
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 7 - 401(k) Retirement Plan
During 1997, the Company adopted a 401(k) retirement plan (the "Plan"). The Plan
covers all full-time employees with at least one year of service. Employees can
contribute a portion of their salary to the Plan within the limits set in the
Internal Revenue Code. The Company matches employee contributions at ten cents
per dollar contributed. In addition to the matching contribution, the Company
may make a discretionary contribution to the Plan. Employees are fully vested in
their contributions and become fully vested in the employer contributions on a
seven-year vesting schedule.
Employer matching contributions to the Plan for the year ended December 31, 1997
of $19,500 were charged to expense. No discretionary contribution was made to
the Plan.
Note 8 - Related Party Transaction
Notes receivable includes an $87,150 note from an employee due in monthly
installments of $880. The employee had previously been a customer of the Company
and upon employment, the related account receivable was converted to a note
receivable.
Note 9 - Operating Leases
The Company conducts its display division operations in office and manufacturing
space leased through December 2000 for $10,540 monthly. The Company also leases
its office facility from a stockholder for $6,100 monthly. There is no set lease
term for this facility; the Company anticipates it will occupy the space
indefinitely. The approximate future minimum rental commitments for the
facilities leases for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 199,692
1999 199,692
2000 199,692
2001 73,200
2002 73,200
------------
Total $ 745,476
============
</TABLE>
During 1997, the Company entered into five equipment leases for printing presses
with the manufacturer. The leases are subject to cancellation from time to time
during the term of the lease. The leases provide for monthly payments ranging
from $16,000 to $24,000 and expire from 2000 to 2004. Lease expense for the
years ended December 31, 1997 and 1996, was $765,816 and $433,151, respectively.
F-15
<PAGE> 60
PERFORMANCE PRINTING CORPORATION
Notes to Financial Statements
December 31, 1997 and 1996
Note 9 - Operating Leases (Continued)
Minimum future rentals for years ending December 31 under these equipment leases
are as follows:
<TABLE>
<S> <C>
1998 $ 1,317,071
1999 1,453,627
2000 1,396,210
2001 511,428
2002 511,428
--------------
Total $ 5,189,764
==============
</TABLE>
Note 10 - Equity Method Investment
The Company and an unrelated investor formed a Texas limited liability company
on December 31, 1993 called Performance Packaging, L.C. ("Packaging"). The
Company contributed 51% of the capital of Packaging and uses the equity method
to account for the investment. Packaging is managed by a committee, on which,
the Company holds two positions and the other stockholder holds three positions.
The Company exercises no effective control over the operations of Packaging;
therefore, the financial information is not consolidated. The investment is
carried at 51% of net equity plus organizational costs contributed by the
Company. At December 31, 1997 and 1996 respectively, notes receivable includes
$13,482 and $188,185 from Packaging.
Condensed financial information at and for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
Unaudited Unaudited
------------------ -----------------
<S> <C> <C>
Current assets $ 934,283 $ 698,096
Non-current assets 1,916,587 1,235,967
----------------- -----------------
Total assets $ 2,850,870 $ 1,934,063
================= =================
Current liabilities $ 693,193 $ 515,125
Non-current liabilities 2,121,730 1,291,083
----------------- -----------------
Total liabilities $ 2,814,923 $ 1,806,208
================= =================
Total revenues $ 6,306,031 $ 3,700,049
================= =================
Net income (loss) $ (91,907) $ 245,572
================= =================
</TABLE>
Note 11 - Litigation and Contingencies
The Company is from time to time subject to routine litigation incidental to its
business. The Company believes that the results of any pending legal proceedings
will not have a materially adverse effect on the Company's financial condition.
Note 12 - Subsequent Event
On April 30, 1998, the Company restated the articles of incorporation to reflect
changes in the capital stock structure. The total authorized number of common
shares increased from 10,000 at $1.00 par value per share to 20,000,000 at $.01
par value per share. Additionally, the Company authorized 3,000,000 shares of
preferred stock at $1.00 par value per share. The financial information in this
report has been adjusted to reflect the impact of these changes.
F-16
<PAGE> 61
{Description of pictures and text on inside of the back cover of the prospectus}
Solo page of inside cover:
Picture #1: Products manufactured by the Company.
Picture #2: Products manufactured by the Company.
Picture #3: Products manufactured by the Company.
Text:
(Logo)
Performance offers a wide range of products and services to companies all over
the country. Our customers include, among others, food and beverage companies,
promotional and media advertising agencies, sports marketing companies, hi-tech
manufacturers and software developers, office-product retailers, airlines and
other printers and display companies.
<PAGE> 62
=======================================================
=======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information ................................................. 5
Prospectus Summary .................................................... 6
Risk Factors .......................................................... 11
Dilution .............................................................. 17
Use of Proceeds ....................................................... 18
Dividend Policy ....................................................... 19
Capitalization ........................................................ 19
Selected Financial Data ............................................... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ........................................... 22
Business .............................................................. 26
Management ............................................................ 32
Certain Transactions .................................................. 35
Principal Shareholders ................................................ 37
Description of Securities ............................................. 38
Shares Eligible For Future Sale ....................................... 40
Underwriting .......................................................... 41
Legal Matters ......................................................... 43
Experts ............................................................... 43
Glossary .............................................................. 44
Table of Contents to Financial Statements ............................. F-1
</TABLE>
-------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=======================================================
=======================================================
1,2000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE REDEEMABLE COMMON STOCK PURCHASE
WARRANT
PERFORMANCE PRINTING
CORPORATION
-------------------
-------------------
PROSPECTUS
, 1998
-------------------
FIRST LONDON SECURITIES
CORPORATION
NUTMEG SECURITIES, LTD.
=======================================================
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides generally
and in pertinent part that a Texas corporation may indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, in connection with any criminal suit or proceeding, if in connection with
the matters in issue, they had no reasonable cause to believe their conduct was
unlawful.
The registrant's Articles of Incorporation provide that a director of
the registrant shall not be liable to the registrant or its shareholders for any
act or omission in such director's capacity as a director to the fullest extent
permitted by Texas statutory or decisional law.
The Company's Bylaws provide that the Company shall indemnify each of
its directors and officers, acting in such capacity, so long as such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company. Such indemnification may be
made only upon a determination that such indemnification is proper in the
circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is also
required to advance to such persons payment for their expenses incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts if
it is ultimately determined that he is not entitled to be indemnified.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..... $ 5,777
NASD filing fee......................................... 2,387
Boston Stock Exchange .................................. 15,000
Nasdaq SmallCap Market listing fee...................... 10,000
Underwriters' non-accountable expense allowance......... 123,000
Legal fees and expenses................................. 175,000
Accounting fees and expenses............................ 35,000
Printing and engraving expenses......................... 85,000
Transfer agent and registrar fees and expenses.......... 4,000
Blue Sky fees and expenses.............................. 30,000
Miscellaneous expenses.................................. 14,836
----------
Total ............................................. $ 500,000
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during the
last three years involving the sale of securities which were not registered
under the Securities Act:
In July, 1996, the Company issued promissory notes secured by the
Company's interest in Performance Packaging (the "1996 Notes") in the aggregate
principal amount of $350,000. The 1996 Notes are due June, 1999 and the
outstanding principal amount of the 1996 Notes bears interest at 14%. The 1996
Notes were used to
II-1
<PAGE> 64
provide working capital to the Company. The 1996 Notes were issued to six
persons, all of whom were officers or directors of the Company or family
members. In connection with the issuance of the 1996 Notes, the Company entered
into a Warrant for Stock Purchase (the "1996 Note Warrants") which entitled the
note purchasers to purchase a specified percentage of the Company's outstanding
stock, unless the Company pays a cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2)
of the Act for transactions not involving a public offering. Each of the
purchasers was a sophisticated investor as that term is recognized under the Act
and had access to corporate information through their positions with the Company
or through their family member who was an officer or director of the Company. No
underwriter was involved in the transaction and no compensation was paid to an
underwriter.
On December 1, 1997, the Company issued an aggregate of $200,000
principal amount of unsecured notes (the "1997 Notes") which are due December 1,
2000 and bear interest at 14%. The 1997 Notes were used to retire $200,000 of
indebtedness of the Company to Mr. John White which was incurred in 1992 to
provide working capital to the Company. The 1997 Notes were issued to five
persons, all of whom were officers or directors of the Company or family
members. In connection with the issuance of the 1997 Notes, the Company entered
into a Warrant for Stock Purchase (the "1997 Note Warrants") with each purchaser
of the 1997 Notes which entitles the note purchasers to purchase a specified
percentage of the Company's outstanding stock, unless the Company pays a
cancellation fee to the note purchaser.
The transaction was exempt from registration pursuant to Section 4 (2)
of the Act for transactions not involving a public offering. Each of the
purchasers was a sophisticated investor and had access to corporate information
through their positions with the Company or through their family member who was
an officer or director of the Company. No underwriter was involved in the
transaction and no compensation was paid to an underwriter.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
1.1 Revised Form of Underwriting Agreement. (3)
3.1 Articles of Incorporation of Performance Printing Corporation, as
amended. (3)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (3)
4.1 Revised Warrant Agreement(3)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (3)
10.2 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (3)
10.3 Representatives' Warrant Agreement (3)
10.4 Commercial Lease Agreement between The Sigma Joint Venture and
Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited Partnership
and Performance Printing Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1, 1997 (3)
10.7 Organization Agreement (3)
10.8 Release of Guaranty (3)
23.1 Consent of Travis Wolff, L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (3)
</TABLE>
- ----------------------
(1) Filed herewith
II-2
<PAGE> 65
(2) To be filed by amendment
(3) Previously filed
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Act, the information omitted from the form of
prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The registrant hereby undertakes (1) to file, during
any period in which it offers or sells securities, a
post-effective amendment to this Registration
Statement, to include any prospectus required by
section 10(a)(3) of the Securities Act, to reflect in
the prospectus any facts or events which, individually
or together, represent a fundamental change in the
information in the Registration Statements, and to
include any additional or changed material information
on the plan of distribution; (2) that, for the purpose
of determining any liability under the Act of 1933, to
treat each post-effective amendment as a new
Registration Statement relating to the securities
offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof; and (3) to file a post-effective
amendment to remove from registration any of the
securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising from the Act may be permitted
to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Dallas,
State of Texas on May 22, 1998.
II-3
<PAGE> 66
PERFORMANCE PRINTING CORPORATION
BY: /s/John T. White
----------------------------------
John T. White, Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Performance Printing
Corporation hereby severally constitute and appoint John T. White and Russell V.
Oesch, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
Registration Statement, including any filings pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and generally to do all things in our names
and on our behalf in such capacities to enable Performance Printing Corporation
to comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on July 22, 1998.
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
/s/ W. Chris Pumpelly Chairman of the Board and Director
- --------------------------------------
W. Chris Pumpelly
/s/ John T. White Chief Executive Officer and Director
- -------------------------------------- (Principal Executive Officer)
John T. White
/s/ Russell V. Oesch Vice President of Finance and Chief
- -------------------------------------- Financial Officer
Russell V. Oesch (Principal Financial Officer)
/s/ C. Thomas Daulton * Director
- --------------------------------------
C. Thomas Daulton
/s/ Richard D. Cox * Director
- --------------------------------------
Richard D. Cox
/s/ Joseph E. Pate Director
- --------------------------------------
Joseph E. Pate
/s/ Stephen M. Lilly * Director
- --------------------------------------
Stephen M. Lilly
* By: John T. White
As Attorney in-Fact
/s/ John T. White
</TABLE>
II-4
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
1.1 Revised Form of Underwriting Agreement. (3)
3.1 Articles of Incorporation of Performance Printing Corporation, as
amended. (3)
3.2 Bylaws, as amended and restated, of Performance Printing Corporation (3)
4.1 Revised Warrant Agreement(3)
5.1 Opinion of Garza & Staples, P.C. (3)
10.1 Performance Printing Corporation Stock Option Plan. (3)
10.2 Loan and Security Agreement by and among the Company and Finova Capital
Corporation, dated December 19, 1996. (3)
10.3 Representatives' Warrant Agreement (3)
10.4 Commercial Lease Agreement between The Sigma Joint Venture and
Performance Printing Corporation (3)
10.5 Standard Commercial Lease between Beltline Quaker Limited Partnership
and Performance Printing Corporation (3)
10.6 First Renewal of Packaging Services Agreement dated April 1, 1997 (3)
10.7 Organization Agreement (3)
10.8 Release of Guaranty (3)
23.1 Consent of Travis Wolff, L.L.P. (1)
23.2 Consent of Garza & Staples, P.C. (included in Exhibit 5.1). (3)
24.1 Power of Attorney (included on page II-4). (1)
27.1 Financial Data Schedule (3)
</TABLE>
- ----------------------
(1) Filed herewith
(2) To be filed by amendment
(3) Previously filed
<PAGE> 1
EXHIBIT 23.1
We have issued our report dated January 16, 1998, except for Note 12 which is
dated April 30, 1998, accompanying the financial statements of Performance
Printing Corporation for the year ended December 31, 1997, contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
/s/ Travis, Wolff & Company, L.L.P.
Dallas, Texas
July 22, 1998
