SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
June 21, 1999
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Exact name of Registrant as specified in Charter)
New Jersey 0-24021 22-3561164
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
5 Burma Road, Jersey City, New Jersey 07305
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (201) 217-1990
629 Grove Street, Jersey City, New Jersey 07310
(Former name or Former Address, if Changed Since Last Report)
<PAGE>
This Form 8-K/A amends and supplements (i) the form 8-K dated June 21, 1999
filed with the Securities and Exchange Commission (the "SEC") on August 6, 1999
relating to the acquisition by Cunningham Graphics International, Inc. (the
"Company") of Venus Holdings Limited and affiliates ("Venus") and (ii) the Form
8-K dated July 14, 1999 filed with the SEC on August 6, 1999 relating to the
acquisition by the Company of MVP Graphics, Inc. and affiliates. This Form 8-K/A
contains the information referred to in Items 2 and Items 7 of the form.
Item 2. Acquisition or Disposition of Assets
Venus Holdings Limited
Pursuant to a Stock Purchase Agreement dated as of June 21, 1999 (the
"Agreement") among Venus, Brian Coles, Wendy Kathleen Coles, and Brian Coles and
Wendy Coles as the trustees of the Brian and Wendy Coles Retirement Relief Trust
(collectively, the "Sellers"), Cunningham Graphics International, Inc. (the
"Company") and RODA Limited (the "Buyer") acquired all of the issued and
outstanding capital stock of Venus, a London corporation.
The purchase price of the acquisition was $6.1 million and was funded
through the Company's revolving line of credit. Under the terms of the purchase
agreement, the Company may be required to pay the Sellers up to an additional
$1.5 million, depending upon the earnings, as defined, of Venus during the years
1999 through 2002.
The Company intends to have Venus continue its operations in the manner
conducted prior to the acquisition.
In connection with the Agreement, Venus entered into a three year
employment agreement dated as of June 21, 1999 with Brian Coles.
MVP Graphics, Inc.
Pursuant to a Stock Purchase Agreement dated as of July 14, 1999 (the
"Agreement") among MVP Graphics, Inc. and Super Pack, Inc. (collectively "MVP
Graphics"), George Chou, Brown Tsui, Wayne Hsieh, William Shaw, Jackie Chou, Mon
Yin Lee, Li-Chin Hao Hsieh and Fung Yuan Wu (collectively, the "Sellers"),
Cunningham Graphics International, Inc. (the "Company"), and CGII California
Holdings, Inc. (the "Buyer) acquired all of the issued and outstanding capital
stock of MVP Graphics, Inc. a California corporation. The purchase price of the
acquisition was $3.6 million and was funded through the Company's revolving line
of credit. Under the terms of the purchase agreement, the Company may be
required to pay the Sellers up to an additional $1.2 million, depending upon the
earnings, as defined, of MVP Graphics during the years 1999 through 2002.
The Company intends to have MVP Graphics, Inc. continue its operations in
the manner conducted prior to the acquisition. The Buyer will change its name to
MVP Graphics, Inc.
In connection with the Agreement MVP Graphics, entered into three year
employment agreements dated July 14, 1999 with certain of the Sellers.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
See Index to Financial Statements and Pro Forma Financial Information
below.
(b) Pro Forma Financial Information
See Index to Financial Statements and Pro Forma Financial Information
below.
(c) Exhibits
Exhibit No. Description
----------- -----------
10.34 Agreement for the sale and purchase of the entire
issued share capital of Venus Holdings Limited dated
June 21, 1999 by and among Venus, Brian Coles, Wendy
Kathleen Coles, and Brian Coles and Wendy Coles as
the trustees of the Brian and Wendy Coles Retirement
Relief Trust (collectively, the "Sellers"),
Cunningham Graphics International, Inc. (the
"Company") and RODA Limited (the "Buyer"). (Exhibit
10.34 to Current Report on Form 8-K for the event
occurring on June 21, 1999)
23.1 Consent of Kingston Smith
23.2 Consent of Campo & Scherr L.L.C.
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
FINANCIAL STATEMENTS PAGE
- --------------------------------------------------------------------------------
VENUS HOLDINGS LIMITED
Company Information F-1
Report of the Directors F-2
Report of the Auditors F-3
Consolidated Profit and Loss Account F-4
Consolidated Balance Sheet F-5
Company Balance Sheet F-6
Consolidated Cash Flow Statement F-7
Notes to the Consolidated Financial Statements F-9
MVP GRAPHICS, INC.
Independent Auditors Report F-19
Combined Balance Sheet F-20
Combined Statement of Income and Retained Earnings F-22
Combined Statement of Cash Flows F-23
Notes to Combined Financial Statements F-24
PRO FORMA FINANCIAL INFORMATION
Introduction to the Unaudited Pro Forma Combined
Financial Statements F-31
Unaudited Pro Forma Combined Balance Sheet as of
June 30, 1999 F-32
Unaudited Pro Forma Combined Statement of Income
for the Year Ended December 31, 1998 F-33
Unaudited Pro Forma Combined Statement of Income as of
June 30, 1999 F-34
Notes to Unaudited Pro Forma combined
Financial Statements F-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cunningham Graphics International, Inc.
----------------------------------------
(Registrant)
Dated: September 3, 1999 By: /s/ Robert M. Okin
---------------------
Name: Robert M. Okin
Title: Senior Vice President
and Chief Financial Officer
<PAGE>
Venus Holdings Limited
Company Information
Directors B. Coles
W. Coles
N. Rowlinson
Secretary W. Coles
Registered Office Devonshire House
60 Goswell Road
London EC1M 7AD
Company Number 2652738
Auditors Kingston Smith
Devonshire House
60 Goswell Road
London EC1M 7AD
Bankers Barclays Bank plc
155 Bishopsgate
London EC2M 3XA
F-1
<PAGE>
Venus Holdings Limited
Report of the Directors
The directors have pleasure in presenting their report and financial statements
for the year ended 31st October 1998.
Principal Activity and Business Review
The principal activity of the group throughout the year was that of printing and
providing allied services.
The directors are satisfied with the results for the year and the financial
position at the year end. The group has continued to maintain its recent levels
of growth through tight management control and maintaining its competitive
advantage throughout the year. The directors expect continued growth in the
foreseeable future.
During the year the group incurred exceptional costs as a result of its phased
move from the City to the Docklands. The company's manufacturing and service
facilities are now entirely located at the Docklands.
Results and Dividends
The results of the group for the year are set out on page 4. The directors do
not recommend the payment of a final dividend.
Directors and their Interests
The directors who served the company throughout the year together with their
interests (including family interests) in the shares of the company and other
group undertakings at the beginning and end of the year were as follows:
Ordinary Shares of (pound)1 each
31st October 1998 31st October 1997
No. No.
B. Coles 37,500 3
W. Coles 12,500 1
N. Rowlinson -- --
On 13th March 1998 the company issued a further 49,996 ordinary shares of
(pound)1 each to B. Coles and W. Coles by way of a bonus issue. On the same date
B. Coles transferred 10,000 of his ordinary shares to an interest-in-possession
trust, of which he and W. Coles are co-trustees.
Year 2000
Assuring the ongoing operations of our business and computer systems into the
next millennium is a key focus of the directors. A comprehensive review of all
systems is being carried out to ensure that:
1) all business and computer systems will correctly process future dates.
2) our trading relationships with suppliers and customers will continue to
operate without disruption.
The total estimated costs of these reviews have not been quantified but are not
expected to be material.
Auditors
Kingston Smith have indicated their willingness to continue in office and in
accordance with the provisions of the Companies Act it is proposed that they be
re-appointed auditors to the company for the ensuing year.
By Order of the Board
Devonshire House /s/ BRIAN COLES
60 Goswell Road ---------------
London B. Coles
EC1M 7AD Director
Date: 20 June 1999
F-2
<PAGE>
Venus Holdings Limited
Directors' Responsibilities and Report of the Auditors
Statement of Directors' Responsibilities
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and the group and of the profit or loss for that period.
In preparing those financial statements, the directors are required to select
suitable accounting policies and then apply them consistently; make judgements
and estimates that are reasonable and prudent and prepare the financial
statements on a going concern basis unless it is inappropriate to assume that
the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Auditors' Report to the Members of Venus Holdings Limited
We have audited the financial statements on pages 4 to 18 which have been
prepared under the historical cost convention and the accounting policies set
out on pages 9 and 10.
Respective Responsibilities of Directors and Auditors
As described above the company's directors are responsible for the preparation
of the financial statements. It is our responsibility to form an independent
opinion, based on our audit, on those statements and to report our opinion to
you.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the company and of the group as at 31st October 1998 and of the
profit of the group for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
/s/ Kingston Smith
Chartered Accountants
and Registered Auditors
Devonshire House
60 Goswell Road
London EC1M 7AD
Date: 20 June 1999
F-3
<PAGE>
Venus Holdings Limited
Consolidated Profit and Loss Account
For the year ended 31st October 1998
<TABLE>
<CAPTION>
Note 1998 1997
(pound) (pound)
<S> <C> <C> <C>
Turnover - continuing operations 2 7,626,243 6,843,519
Cost of sales (5,221,663) (4,311,116)
---------- ----------
Gross Profit 2,404,580 2,532,403
Distribution costs (248,695) (254,366)
Administrative expenses (1,814,244) (1,571,159)
---------- ----------
Operating Profit 3 341,641 706,878
Interest receivable and similar income 4 27,041 25,090
Interest payable and similar charges 5 (120,592) (131,149)
---------- ----------
Profit on Ordinary Activities before Taxation 248,090 600,819
Taxation 7 (96,153) (144,213)
---------- ----------
Profit for the Financial Year 15 151,937 456,606
Minority interest (3,851) (12,566)
---------- ----------
148,086 444,040
Dividends on equity shares 15,16 (2,450) (10,500)
---------- ----------
Retained Group Profit for the Financial Year 145,636 433,540
========== ==========
</TABLE>
There are no recognised gains and losses in the year other than the profit for
the year.
F-4
<PAGE>
Venus Holdings Limited
Consolidated Balance Sheet at 31st October 1998
<TABLE>
<CAPTION>
Note At 31st October 1998 At 31st October 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed Assets
Tangible assets 8 4,082,894 2,107,242
Investments 9 250,000 250,000
-------------- ---------------
4,332,894 2,357,242
Current Assets
Stock 10 148,172 97,256
Debtors 11 1,733,341 1,563,395
Investments 38,719 62,830
Cash at bank and in hand 72,461 469,496
--------------- --------------
1,992,693 2,192,977
Creditors: Amounts falling due
within one year 13 (2,289,765) (1,683,870)
--------------- --------------
Net Current (Liabilities)/Assets (297,072) 509,107
-------------- ---------------
Total Assets less Current Liabilities 4,035,822 2,866,349
Creditors: Amounts falling due after
more than one year 14 (2,008,406) (1,061,564)
Provision for Liabilities and Charges
Deferred taxation 18 (214,374) (141,230)
-------------- ---------------
Net Assets 1,813,042 1,663,555
============== ===============
Capital and Reserves
Called up share capital 15 50,000 4
Profit and loss account 1,715,564 1,607,674
-------------- ---------------
Equity Shareholders' Funds 1,765,564 1,607,678
Equity minority interests 47,478 55,877
-------------- ---------------
15 1,813,042 1,663,555
============== ===============
</TABLE>
Approved by the board on 20 June 1999
B. Coles /s/ BRIAN COLES, Director
---------------
F-5
<PAGE>
Venus Holdings Limited
Consolidated Balance Sheet at 31st October 1998
<TABLE>
<CAPTION>
Note At 31st October 1998 At 31st October 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed Assets
Tangible assets 8 4,400 --
Investments 9 1,254,705 1,240,589
-------------- ---------------
1,259,105 1,240,589
Current Assets
Amount owed by subsidiary undertaking
not repayable within one year 400,000 --
Debtors 11 111,839 494,297
Investments 12 38,719 62,830
Cash at bank and in hand 23,831 92,030
--------------- --------------
574,389 649,157
Creditors: Amounts falling due
within one year 13 (52,250) (232,086)
--------------- --------------
Net Current Assets 522,139 417,071
-------------- ---------------
Total Assets less Current Liabilities 1,781,244 1,657,660
============== ===============
Capital and Reserves
Called up share capital - equity interest 15 50,000 4
Revaluation reserve 15 1,254,705 1,240,589
Profit and loss account 15 476,539 417,067
-------------- ---------------
Shareholders' Funds 15 1,781,244 1,657,660
============== ===============
</TABLE>
Approved by the board on 20 June 1999
B. Coles /s/ BRIAN COLES, Director
---------------
F-6
<PAGE>
Venus Holdings Limited
Consolidated Cash Flow Statement
For the year ended 31st October 1998
<TABLE>
<CAPTION>
Note 1998 1998 1997 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Net Cash Inflow from Operating
Activities 1 1,235,408 1,168,951
Returns on Investments and Servicing
of Finance
Interest received 27,041 25,090
Interest paid (8,185) (5,344)
Interest element of finance lease rentals
payments (112,407) (103,829)
--------------- -------------
Net Cash Outflow from Returns on
Investments and Servicing of Finance (93,551) (84,083)
Taxation
Corporation tax paid (176,341) (176,569)
--------------- -------------
Tax Paid (176,341) (176,569)
Capital Expenditure and Financial
Investment
Purchase of tangible fixed assets (2,752,345) (1,093,833)
Purchase of current asset investments (683,848) (800,272)
Proceeds from sale of fixed assets 61,670 316,300
Proceeds from sale of investments 31,570 715,469
--------------- -------------
Net Cash Outflow for Capital Expenditure
and Financial Investment (2,659,105) (862,336)
Equity Dividends Paid -- (20,000)
Financing
Capital element of finance lease rental
payments 1,224,783 78,484
-------------- --------------
(Decrease)/Increase in Cash (468,806) 104,447
============== ==============
Reconciliation of Net Cash Flow to Movement in Net Debt (pound) (pound)
(Decrease)/increase in cash in the period (468,806) 104,447
Cash outflow from movement in lease financing (1,224,783) (78,484)
-------------- --------------
Movement in net debt in the year (1,693,589) 25,963
Net debt at 1st November 1997 (727,331) (753,394)
-------------- --------------
Net debt at 31st October 1998 (see Note 2) (2,420,920) (727,331)
============== ==============
</TABLE>
F-7
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Cash Flow Statement
For the year ended 31st October 1998
<TABLE>
<CAPTION>
1 Reconciliation of Operating Profit to Net Cash 1998 1997
Inflow from Operating Activities (pound) (pound)
<S> <C> <C>
Operating profit 341,641 706,878
Depreciation charges 716,113 580,030
Increase in stocks (50,916) (7,999)
Increase in debtors (169,946) (365,411)
Increase in creditors 407,065 277,794
Profit on sale of tangible assets (1,090) (22,341)
--------------- ---------------
1,242,867 1,168,951
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
2 Analysis of Net Debt
At At At
31st October Cash 31st October Cash 31st October
1996 Flow 1997 Flow 1998
(pound) (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand 365,049 104,447 469,496 (468,806) 690
Finance leases (1,118,343) (78,484) (1,196,827) (1,224,783) (2,421,610)
-------------- --------------- -------------- --------------- --------------
(753,294) (25,953) (727,331) (1,693,589) (2,420,920)
============== =============== ============== =============== ==============
</TABLE>
F-8
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998
1 Accounting Policies
Accounting Basis and Standards
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
Basis of Consolidation
The group profit and loss account and balance sheet consist of the
financial statements of the parent company and its subsidiary undertakings.
Turnover
Turnover represents the invoiced value of goods sold and services provided
net of credit notes and excluding value added tax.
Depreciation
Depreciation on fixed assets is provided at rates estimated to write off
the cost, less estimated residual value, of each asset over its expected
useful life as follows:
Leasehold property straight line over the period of the lease
Plant and machinery 15% - 25% straight line
Motor vehicles 25% straight line
Fixtures and fittings 10% straight line
Stocks
Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost is calculated as follows:
Raw materials cost of purchase on first in, first out basis
Work in progress cost of raw materials and labour based on
normal level of activity
Net realisable value is based on estimated selling price less any futher
costs to be incurred to completion and sale.
Deferred Taxation
Deferred tax is accounted for under the liability method in respect of the
taxation effects of all timing differences which are expected to reverse in
the future, calculated at the rate at which it is estimated that tax will
be payable.
Pension Scheme Arrangements
The company operates a defined contribution pension scheme, the assets of
the scheme being held separately from the assets of the company. The
pension cost charge represents contributions payable to the scheme.
Leased Assets
Assets held under finance leases and hire purchase contracts are
capitalised in the Balance Sheet and depreciated over their expected useful
lives. The interest element of the rental obligations is charged to the
Profit and Loss Account over the period of the lease (and represents a
constant proportion of the balance of capital repayments outstanding).
Rentals paid under operating leases are charged to income on a straight
line basis over the lease term.
Foreign Exchange
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange prevailing at the
accounting date. Transactions in foreign currencies are recorded at the
rate ruling at the date of the transactions. All differences on exchange
are taken to the Profit and Loss Account.
Goodwill
Goodwill is determined by comparing the amount paid on the acquisition of a
subsidiary undertaking and the group's share of the aggregate fair value of
its separable net assets and is written off to consolidated reserves in the
year.
F-9
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
1 Accounting Policies (Continued)
Employee Share Ownership Trust
In accordance with the requirements of the Accounting Standards Board which
took effect for accounting periods ending on or after 22nd June 1995, the
net assets represented by contributions made by the company to the trustees
of The Apollo Employee Benefit Trust are to be consolidated with those of
the company until the shares held by the trust are allocated
unconditionally to employees or former employees of the company. As a
consequence, shares in Apollo UK Limited held by The Apollo Employee
Benefit Trust are included as a fixed asset investment of the group.
Where trust assets vest in employees by reference to predetermined future
service obligations, any related company contributions to the trust are
charged in the Profit and Loss Account over the period of service involved.
Otherwise contributions are charged in the Profit and Loss Account as
incurred in accordance with the prudence concept.
2 Turnover
Turnover is attributable to the one principal activity of the group which
arose wholly in the United Kingdom.
<TABLE>
<CAPTION>
3 Operating Profit 1998 1997
(pound) (pound)
<S> <C> <C>
The operating profit is stated after charging/(crediting):
Auditors' remuneration - company 4,900 1,200
- group 13,700 12,400
Depreciation - owned tangible fixed assets 343,335 237,598
Depreciation - assets held under finance leases
and hire purchase contracts 372,778 342,432
Hire of equipment 141,215 30,716
Other operating lease rentals - land and buildings 213,658 126,277
Profit on sale of fixed assets (1,090) (22,342)
============== ==============
</TABLE>
<TABLE>
<CAPTION>
4 Interest Receivable and Similar Income 1998 1997
(pound) (pound)
<S> <C> <C>
Bank interest receivable 17,814 20,913
Profit on investments 7,459 --
Income from investments 1,768 4,177
-------------- --------------
27,041 25,090
============== ==============
</TABLE>
<TABLE>
<CAPTION>
5 Interest Payable and Similar Charges 1998 1997
(pound) (pound)
<S> <C> <C>
Bank overdraft and loan interest 481 329
Finance leases and hire purchase contracts 112,407 103,829
Other interest payable 1,968 98
Loss on investments -- 21,976
Loss on foreign exchange transactions 5,736 4,917
-------------- --------------
120,592 131,149
============== ==============
</TABLE>
F-10
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
<TABLE>
<CAPTION>
6 Directors and Employees 1998 1997
(pound) (pound)
<S> <C> <C>
Staff costs during the year were as follows:
Wages and salaries 2,516,755 2,239,126
Social security costs 247,205 219,692
Pension costs 28,757 94,547
-------------- --------------
2,792,717 2,553,365
============== ==============
</TABLE>
The average monthly number of persons employed by the company, including
directors, during the year was as follows:
<TABLE>
<CAPTION>
Number Number
<S> <C> <C>
Administration 53 43
Production 37 26
Selling and distribution 8 12
-------------- --------------
98 81
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Directors' Emoluments: (pound) (pound)
<S> <C> <C>
Remuneration for management services 131,521 224,617
Pension contributions 6,934 76,921
-------------- --------------
138,455 301,538
============== ==============
Highest paid director 84,656 194,413
============== ==============
</TABLE>
During the year the group paid (pound)4,785 (1997 - (pound)74,772) into the
defined contribution pension scheme on behalf of the highest paid director.
All the directors are included in the defined contribution pension scheme.
<TABLE>
<CAPTION>
7 Taxation 1998 1997
(pound) (pound)
<S> <C> <C>
U.K. Corporation tax at the rate of(pound)Nil% (1997 - 28.8%) -- 153,924
Corporation tax - underprovision in respect of prior year 23,009 --
Deferred taxation 73,144 (9,711)
-------------- --------------
96,153 144,213
============== ==============
</TABLE>
F-11
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
<TABLE>
<CAPTION>
8 Tangible Assets
Leasehold Fixtures
Group Land and Plant and Motor and
Buildings Machinery Vehicles Fittings Total
Cost (pound) (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
At 1st November 1997 76,654 3,272,769 216,743 83,368 3,649,534
Additions 93,154 2,273,083 112,084 274,024 2,752,345
Disposals -- (16,000) (86,995) -- (102,995)
-------------- --------------- -------------- --------------- --------------
At 31st October 1998 169,808 5,529,852 241,832 357,392 6,298,884
-------------- --------------- -------------- --------------- --------------
Depreciation
At 1st November 1997 30,069 1,448,430 26,717 37,076 1,542,292
Charge for the year 12,358 633,041 44,259 26,455 716,113
Eliminated on disposal -- (9,600) (32,815) -- (42,415)
-------------- --------------- -------------- --------------- --------------
At 31st October 1998 42,427 2,071,871 38,161 63,531 2,215,990
-------------- --------------- -------------- --------------- --------------
Net Book Value
At 31st October 1998 127,381 3,457,981 203,671 293,861 4,082,894
============== =============== ============== =============== ==============
At 31st October 1997 46,585 1,824,339 190,026 46,292 2,107,242
============== =============== ============== =============== ==============
</TABLE>
The net book value of fixed assets includes an amount of (pound)3,236,066
(1997 - (pound)1,645,166) in respect of assets held under finance leases
and hire purchase contracts. Net obligations under finance leases and hire
purchase contracts are secured on the assets acquired.
Fixtures
Company and
Fittings
Cost (pound)
Acquired during the year and at 31st October 1998 4,400
--------------
Depreciation
Charge for the year and at 31st October 1998 --
--------------
Net Book Value
At 31st October 1998 4,400
==============
9 Fixed Asset Investments
Group Unlisted
Investments
Cost and Net Book Value (pound)
At 1st November 1997 and 31st October 1998 250,000
==============
F-12
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
9 Fixed Asset Investments (Continued)
Employee Share Ownership Trust
The investment represents the cost of 3,500 ordinary (pound)1 shares in
Apollo UK Limited at a price of (pound)71.43 per share. On 27th April 1995
Performance Securities Limited, acting as the sole trustee of The Apollo
Employee Benefit Trust approved the purchase of these shares which are
required to be included in the assets of the company until they vest in the
employees or former employees of the company in accordance with the terms
of the trust (see Note 1).
None of the shares had vested conditionally or unconditionally at the
balance sheet date and no option had been granted over them.
The total cost of the shares is (pound)250,000 (1997 - (pound)250,000) and
in the directors' opinion the value of the investments is not less than the
cost.
<TABLE>
<CAPTION>
Company 1998 1997
(pound) (pound)
<S> <C> <C>
Amounts attributable to interest in subsidiary company 1,254,705 1,240,589
============== ==============
</TABLE>
The following details relate to the company's subsidiary undertakings:
<TABLE>
<CAPTION>
Effective
percentage
Country of Class of shares Nature of
Name incorporation of share held business
<S> <C> <C> <C> <C>
Apollo (UK) Limited England Ordinary 96.5% Printing
Subsidiaries of Apollo (UK) Limited:
Artemis Colour Limited England Ordinary 96.5% Printing
Performance Securities Limited England Ordinary 96.5% Dormant
Apollo Offset Limited England Ordinary 96.5% Dormant
Apollo Translation Limited England Ordinary 96.5% Dormant
</TABLE>
All subsidiary undertakings prepare accounts to 31st October.
<TABLE>
<CAPTION>
10 Stocks Group Company
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Raw materials 105,225 60,634 -- --
Work in progress 42,947 36,622 -- --
--------------- --------------- -------------- --------------
148,172 97,256 -- --
=============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
11 Debtors Group Company
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Trade debtors 1,225,131 1,195,148 -- --
Amounts owed by subsidiary undertakings -- -- 36,679 --
Other debtors 350,378 137,941 75,160 357,629
Prepayments and accrued income 157,832 93,638 -- -
Cash held by brokers -- 136,668 -- 136,668
--------------- --------------- -------------- --------------
1,733,341 1,563,395 111,839 494,297
=============== =============== ============== ==============
</TABLE>
F-13
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
<TABLE>
<CAPTION>
12 Current Asset Investments Group Company
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Other investments 38,719 62,830 38,719 62,830
=============== =============== ============== ==============
</TABLE>
The company holds listed investments with a cost value of (pound)38,719
(1997 - (pound)62,830), of which (pound)30,550 (1997 - (pound)57,830) are
listed on a recognised stock exchange. The total investments listed on a
recognised stock exchange have a market value of (pound)26,698 (1997 -
(pound)66,545).
<TABLE>
<CAPTION>
13 Creditors: Amounts falling due Group Company
within one year 1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Bank loans and overdrafts 71,771 -- -- --
Trade creditors 825,086 667,496 -- --
Amounts owed to parent undertaking - -- -- 20,982
Corporation tax - 153,332 -- 27,779
Advance corporation tax 2,625 2,625 2,625 2,625
Social security and other taxes 121,041 142,788 35,000 70,000
Other creditors 372,332 75,995 -- --
Obligations under hire purchase and
finance lease contracts 663,204 385,263 -- --
Proposed dividends 12,950 10,500 10,500 10,500
Accruals and deferred income 220,756 245,871 4,125 100,200
--------------- --------------- -------------- --------------
2,289,765 1,683,870 52,250 232,086
=============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
14 Creditors: Amounts falling due Group Company
after more than one year 1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Deferred employee benefits 250,000 250,000 -- --
Obligations under finance leases and
hire purchase contracts 1,758,406 811,564 -- --
--------------- --------------- -------------- --------------
2,008,406 1,061,564 -- --
=============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
15 Shareholders' Funds
Called Up Profit
Group Share and Loss
Capital Account Total
1998 (pound) (pound) (pound)
<S> <C> <C> <C>
At 1st November 1997 4 1,663,551 1,663,555
Transfer to profit and loss account -- 151,937 151,937
Bonus issue 49,996 (49,996) -
Dividend -- (2,450) (2,450)
--------------- -------------- --------------
At 31st October 1998 50,000 1,763,042 1,813,042
=============== ============== ==============
</TABLE>
F-14
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
15 Shareholders' Funds (Continued)
<TABLE>
<CAPTION>
Called Up Profit
Company Share Revaluation and Loss
Capital Reserve Account Total
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
At 1st November 1997 4 1,240,589 417,067 1,657,660
Surplus arising on the revaluation of --
the investment in the subsidiary 14,116 -- 14,116
Bonus issue 49,996 -- (49,996) -
Transfer to profit and loss account -- -- 109,468 109,468
--------------- --------------- -------------- --------------
At 31st October 1998 50,000 1,254,705 476,539 1,781,244
=============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
The company share capital comprises: 1998 1997
(pound) (pound)
<S> <C> <C>
Authorised
50,000 Ordinary shares of(pound)1 each 50,000 50,000
============== ==============
Called up, allotted and fully paid:
50,000 (1997 - 4) Ordinary shares of(pound)1 each 50,000 4
============== ==============
</TABLE>
On 13th March 1998 the company issued a further 49,996 ordinary shares of
(pound)1 each to B. Coles and W. Coles by way of a bonus issue. On the same
date B. Coles transferred 10,000 of his ordinary shares to an
interest-in-possession trust of which he and W. Coles are co-trustees.
16 Dividends 1998 1997
(pound) (pound)
Proposed dividends on equity shares 2,450 10,500
============== ==============
17 Future Financial Commitments
(a) Operating leases
At 31st October 1998 the group had annual commitments under operating
leases as set out below:
<TABLE>
<CAPTION>
1998 1998 1997 1997
Land and Land and
Buildings Other Buildings Other
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Operating leases which expire:
Within one year -- 2,040 -- --
In the second to fifth year -- 246,588 -- --
After five years 279,864 -- 279,864 --
--------------- --------------- -------------- --------------
279,864 248,628 279,864 --
=============== =============== ============== ==============
</TABLE>
At the year end the company had no annual commitments under operating
leases.
F-15
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
17 Future Financial Commitments (Continued)
(a) Finance leases
At 31st October 1998 the group had obligations under finance leases and
hire purchase contracts which are set out below:
1998 1997
(pound) (pound)
Gross amount payable:
Within one year 663,204 385,263
In the second to fifth year 1,758,406 811,564
--------------- --------------
2,421,610 1,196,827
=============== ==============
Finance leases and hire purchase contracts are analysed as follows:
Due within one year (Note 13) 663,204 385,263
Due after more than one year (Note 14) 1,758,406 811,564
--------------- --------------
2,421,610 1,196,827
=============== ==============
At the year end the company had no obligations under finance leases and
hire purchase contracts.
18 Provision for Liabilities and Charges
Deferred taxation
Provision for deferred taxation has been made in these financial statements
in accordance with the accounting policy described in Note 1. The amounts
provided and the full potential liability are as follows:
<TABLE>
<CAPTION>
Group Company
Potential Liability Potential Liability
and and
Amount Provided Amount Provided
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Accelerated capital allowances 214,374 141,230 -- --
=============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Group Company
1998 1998
(pound) (pound)
<S> <C> <C>
At 1st November 1997 141,230 --
Transferred to profit and loss account (Note 7) 73,144 --
--------------- --------------
At 31st October 1998 214,374 --
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
19 Capital Commitments 1998 1997
(pound) (pound)
Group capital commitments as at 31st October 1998 are as follows:
<S> <C> <C>
Expenditure contracted but not provided for in the financial statements 32,108 444,429
=============== ==============
</TABLE>
At the year end the company had no capital commitments.
F-16
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
20 Profit for the Financial Year
As permitted by section 230 of the Companies Act 1985, the Profit and Loss
Account of the company is not presented as part of these financial
statements. The group profit for the financial year of (pound)145,636 (1997
- (pound)443,540) includes a profit of (pound)109,468 (1997 -
(pound)437,067) which is dealt with in the financial statements of the
company.
21 Related Parties
The group has taken advantage of the exemptions conferred by FRS 8
paragraph 3c not to make disclosures concerning related parties.
22 Differences between UK and US Accounting Principles
(a) Employee Share Trust arrangements
Under UK GAAP, the Company's ordinary shares held by the employee share
trust are included at historic net book value in fixed asset investments.
Under US GAAP, such shares are treated as treasury stock and included in
shareholders' equity.
(b) Goodwill
UK GAAP allows negative goodwill arising on consolidation to be written off
to reserves. Under US GAAP, the excess of net assets over cost (i.e.
negative goodwill) is not recorded in the financial statements unless all
identifiable non-current assets have been reduced to zero. If this
circumstance arises, the bargain purchase element is recorded as a deferred
credit.
(c) Deferred taxation
Deferred taxation is provided on a full provision basis under US GAAP.
Under UK GAAP, no provision is made unless there is reasonable evidence
that such deferred taxation will be payable in the foreseeable future.
(d) Ordinary dividends
Under UK GAAP, the proposed dividends on ordinary shares as recommended by
the directors, are deducted from shareholders' equity and shown as a
liability in the balance sheet at the end of the period to which they
relate. Under US GAAP, such dividends are only deducted from shareholders'
equity at the date of declaration of the dividend.
(e) Cash Flows
The Cash Flow Statement has been prepared in accordance with UK Financial
Reporting Standard 1 (Revised) -'Cash Flow Statements'.
The principal differences between this statement and cash flow statements
presented in accordance with US Financial Accounting Standard 95 are as
follows:
o Under UK GAAP, net cash flow from operating activities is determined
before considering cash flows from: (i) returns on investments and
servicing of finance; and (ii) taxes paid, under US GAAP net cash from
operating activities is determined after these items.
o Under UK GAAP capital expenditure is classified separately, while
under US GAAP, it is classified as an investing activity.
F-17
<PAGE>
Venus Holdings Limited
Notes to the Consolidated Financial Statements
For the year ended 31st October 1998 (Continued)
22 Differences between UK and US Accounting Principles (continued)
(e) Cash Flows (continued)
Set out below is a summary consolidated cash flow statement under US GAAP:
<TABLE>
<CAPTION>
1998
(pound) (pound)
<S> <C> <C>
Net cash inflow from operating activities (UK GAAP) 1,235,408
Returns on investment and servicing of finance (93,551)
Taxation (176,341)
------------
Net cash inflow from operating activities (US GAAP) 965,516
Net cash outflow from investing activities (2,659,105)
Net cash inflow from financing activities 1,224,783
--------------
Net decrease in cash under US GAAP (468,806)
==============
Net decrease in cash under UK GAAP (468,806)
==============
</TABLE>
The following is a summary of material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been
applied instead of UK GAAP:
1998 1997
(pound) (pound)
Net income - UK GAAP 145,636 433,540
Ordinary dividends 2,450 10,500
-------------- --------------
Net income - US GAAP 148,086 444,040
============== ==============
1998 1997
(pound) (pound)
Shareholders' equity - UK GAAP 1,813,042 1,663,555
Employee share trust - arrangements (250,000) (250,000)
Negative goodwill (1,183,060) (1,183,060)
Ordinary dividends 2,450 10,500
-------------- --------------
Shareholders' equity - US GAAP 382,432 240,995
============== ==============
F-18
<PAGE>
July 1, 1999
To the Stockholders
MVP Graphics, Inc.
We have audited the accompanying combined balance sheet of MVP Graphics, Inc.
and Combined Affiliate as of December 31, 1998, and the related statements of
income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MVP Graphics, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Campo & Scherr, L.L.C.
Campo & Scherr, L.L.C.
F-19
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
COMBINED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 18,410
Accounts receivable (Net of Allowance for Doubtful Accounts
of $139,996) 981,638
Inventory 36,500
Prepaid expenses and other current assets 60,620
Note receivable - current portion 14,782
----------
1,111,950
----------
PROPERTY AND EQUIPMENT - NET 1,421,983
----------
OTHER ASSETS:
Note receivable 66,294
Deposits 16,248
Organization costs - Net 387
----------
82,929
----------
$2,616,862
==========
F-20
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 301,715
Accrued expenses and other current liabilities 242,440
Income taxes payable 42,388
Current portion of notes payable - stockholders 163,892
Current portion of capital lease obligations 450,504
----------
1,200,939
----------
LONG-TERM LIABILITIES - CAPITAL LEASE OBLIGATIONS 1,061,042
----------
STOCKHOLDERS' EQUITY:
Common stock 250,000
Additional Paid-In Capital 50,000
Retained earnings 54,881
----------
Total Stockholders' Equity 354,881
----------
$2,616,862
==========
See accompanying notes
F-21
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1998
NET SALES $ 7,101,426
-----------
OPERATING EXPENSES:
Costs of production 4,258,566
Selling, general and administrative 2,449,724
Depreciation and amortization 31,183
-----------
6,739,473
-----------
INCOME FROM OPERATIONS 361,953
Interest expense (182,807)
Interest income --
Other income (expense) 25,281
-----------
INCOME BEFORE INCOME TAXES 204,427
Provision for income taxes 94,800
-----------
NET INCOME 109,627
BEGINNING DEFICIT (54,746)
-----------
ENDING RETAINED EARNINGS $ 54,881
===========
See accompanying notes
F-22
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
Cash Flows From Operating Activities:
Net Income $ 109,627
Adjustments To Reconcile Net Income To Net Cash
Provided By Operating Activities:
Depreciation and amortization 422,870
Provision for bad debts 90,562
Increase in accounts receivable 7,788
Increase in prepaid expenses and other current assets (41,386)
Decrease in other assets 81,265
Decrease in accounts payable (263,764)
Decrease in accrued expenses and other current liabilities (9,521)
Increase in income taxes payable 30,507
---------
Net Cash Provided By Operating Activities 427,948
---------
Cash Flows From Investing Activities:
Payments for purchase of property and equipment (32,609)
---------
Net Cash Used In Investing Activities (32,609)
---------
Cash Flows From Financing Activities:
Principal payments on capital lease obligations (356,147)
Repayments of stockholder loans (65,000)
Principal payments on long-term debt (6,222)
---------
Net Cash Used In Financing Activities (427,369)
---------
NET DECREASE IN CASH (32,030)
CASH - BEGINNING OF YEAR 50,440
---------
CASH - END OF YEAR $ 18,410
=========
See accompanying notes
F-23
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
Note A: Summary of Significant Accounting Policies:
Business Activity
MVP Graphics, Inc., incorporated in 1993, is a commercial sheet-fed printer
serving the Los Angeles and Orange County markets. MVP provides services in
all areas of commercial printing, including pre-press, printing and
post-press operations. Super Pack, Inc., its combined affiliate and
incorporated in 1997, performs chipboard die cutting, and manufactures
boxes and packaging supplies.
Operations
The accompanying combined financial statements include the accounts of MVP
Graphics, Inc. (MVP) and Super Pack, Inc. (Super Pack), an S Corporation.
These companies are related through common ownership and are collectively
referred to herein as the "Company". All significant intercompany balances
and transactions have been eliminated in combination.
Inventory
Inventory which consists principally of raw materials is stated at lower of
cost (first-in, first-out basis) or market.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is principally calculated using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements
are amortized over the life of the related lease by the straight line
method.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-24
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note B: Concentrations:
1. At December 31, 1998, two accounts with combined bank balances of
approximately $273,543 were maintained in a bank insured by the
Federal Deposit Insurance Corporation (FDIC). This balance is
approximately $173,543 in excess of the insured amounts of $100,000.
2. During 1998, the Company purchased approximately $862,000 of materials
from one vendor which represented approximately 35% of total
purchases.
3. During 1998, the Company had sales of approximately $1,200,000 to one
customer which represented approximately 17% of total sales.
Note C: Note Receivable:
Note receivable from Merit Group, payable in monthly
installments of $2,500 including interest imputed at 6.23%,
per annum. $ 81,076
Less: Current portion 14,782
----------
$ 66,294
==========
Note D: Property and Equipment:
Property and equipment consists of the following:
Equipment $2,850,709
Leasehold improvements 85,046
Furniture & fixtures 31,228
Transportation equipment 41,202
----------
3,008,185
Less: Accumulated depreciation 1,586,202
----------
Net Property and Equipment $1,421,983
==========
F-25
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note D: Property and Equipment (Continued):
Included in depreciation expense of $422,660 is $335,014 of amortization of
equipment on capital leases.
Included in equipment is equipment under capital leases with a cost of
$2,375,935 and accumulated amortization of $1,315,914.
Note E: Financing Agreements:
The Company had a $300,000 line of credit with Sanwa Bank which expired on
June 30, 1999 and was not renewed. As of December 31, 1998, the Company had
$300,000 available under the line of credit. Borrowings on the line bear
interest at 9.75%. The debt was secured by the Company's equipment,
inventory, accounts and contract rights, all receivables, general
intangibles and other assets and was personally guaranteed by the
stockholders of the Company.
Note F: Notes Payable - Stockholders:
Notes payable - stockholders consists of various notes
bearing interest at 12%, due on demand, and
collateralized by corporate assets. $ 163,892
==========
Interest expense for the year ended December 31, 1998 was approximately
$26,000.
F-26
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note G: Capital Lease Obligations:
The Company is obligated under capital leases for equipment expiring in
various years through 2003. Capital lease obligations as of December 31
consist of the following:
Lease payable to a leasing company, payable in monthly
installments of $10,700 (including interest at 7.39%
per annum), collateralized by the equipment. $ 238,044
Lease payable to a leasing company, payable in monthly
installments of $7,192 (including interest at 6.226%
per annum), collateralized by the equipment. 304,894
Lease payable to a leasing company, payable in monthly
installments of $22,542 (including interest at 10.475%
per annum), collateralized by the equipment. 742,408
Lease payable to a leasing company, payable in monthly
installments of $5,400 (including interest at 8.92%
per annum), collateralized by the equipment. 226,200
------------
Total 1,511,546
Less: Current Portion (450,504)
------------
$1,061,042
============
F-27
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note G: Capital Lease Obligations (Continued):
Minimum future lease payments under capital leases as of December 31, 1998
for each of the next five years and in the aggregate are:
December 31, Amount
-----------------
1999 $ 572,550
2000 550,008
2001 421,608
2002 196,188
2003 12,821
-----------------
Total Minimum Lease Payments 1,753,175
Less: Amount representing interest 241,629
-----------------
Present Value of Minimum Lease Payments $1,511,546
=================
Interest expense for the year ended December 31, 1998 was approximately
$123,000.
Note H: Common Stock:
Common stock consists of the following as of December 31, 1998:
<TABLE>
<CAPTION>
Shares Issued
Shares and
Par-Value Authorized Outstanding Balance
---------------------- --------------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
MVP Graphics, Inc. Stated value
at
$1,000 per
share 100,000 200 $200,000
Superpack, Inc. Stated value
at
$1 per share 1,000,000 50,000 50,000
-----------------
$250,000
=================
</TABLE>
F-28
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note I: Employee Benefit Plan:
The Company maintains a 401(k) Profit Sharing Plan which covers
substantially all employees. Participants are permitted, in accordance with
the provisions of Section 401(k) of the Internal Revenue Code, to
contribute up to 15% of their gross earnings into the plan, subject to
certain limitations. The Company matches up to 25% on the first 6% of the
employees' contribution to the Plan on an annual basis. The Company may
make additional discretionary contributions to the plan. Company
contributions to the plan were approximately $96,000 for the year ended
December 31, 1998. The stockholders of the Company are trustees of the
plan.
Note J: Commitments:
The Company leases office and warehouse space under a three-year lease
expiring July 2000, with an option to extend for three years. The future
minimum rental payments for the next three (3) years and in the aggregate
under the above lease agreement is as follows:
Year Ending December 31, Amount
----------------------------------- ----------------
1999 $ 113,952
2000 70,168
----------------
Total Future Minimum Lease Payments $ 184,120
================
Rent expense was approximately $70,000 for the year ended December 31,
1998.
Note K: Income Taxes:
The provision for income taxes, all current, for the year ended December
31, 1998 is $94,800.
The provision for income taxes differs from the amount that would result
from applying statutory rates because of certain nondeductible expenses,
principally premiums for officers' life insurance and entertainment.
F-29
<PAGE>
MVP GRAPHICS, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Note L: Cash Flows:
1. During the year ended December 31, 1998, the Company paid interest of
approximately $183,000. Also, during the years ended December 31,
1998, the Company paid income taxes of approximately $65,000.
2. During the year ended December 31, 1998, the Company had the following
Non-cash investing and financing transactions:
Non-cash investing/financing:
Acquisition of equipment under capital lease
obligations of approximately $596,000.
Non-cash investing:
Accounts receivable trade were restructured as a note
receivable for approximately $81,000.
Non-cash financing:
Loans payable to stockholders were capitalized as
additional paid-in capital for $50,000.
F-30
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
INTRODUCTION TO THE UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Cunningham Graphics International, Inc. (the "Company")
of: (i) Venus Holdings Limited ("Venus") on June 21, 1999 and (ii) MVP Graphics,
Inc ("MVP Graphics") on July 14, 1999. The December 31, 1998 unaudited pro forma
financial statements presented below were derived from: (a) the audited
financial statements for the Company for the year ended December 31, 1998; (b)
the audited financial statements for Venus for the year ended October 31, 1998;
and (c) the audited financial statements for MVP Graphics and Combined Affiliate
for the year ended December 31, 1998. The June 30, 1999 unaudited pro forma
financial statements presented below were derived from: (a) the unaudited
interim financial statements for the Company for the six months ended June 30,
1999; (b) the unaudited interim financial statements for Venus for the six
months ended June 30, 1999; and, (c) the unaudited interim financial statements
for MVP Graphics for the six months ended June 30, 1999. The unaudited pro forma
balance sheet for Venus has not been presented separately for June 30, 1999, as
the amounts have been included in the balance sheet of the Company.
The unaudited pro forma combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with, the historical consolidated financial statements of Cunningham
Graphics International, Inc. included in its Annual Report on Form 10-K for the
year ended December 31, 1998. None of the pro forma financial statements
included herein purport to be indicative of the Company's financial position or
results of operations that would have occurred had the transactions been
completed as of or at the beginning of the periods presented, nor do such
statements purport to indicate the Company's financial condition or results of
operations at any future date or for any future period.
F-31
<PAGE>
Unaudited Pro Forma Balance Sheet
(in Thousands)
The unaudited pro forma balance sheet presented below reflects the
financial position of the Company as of June 30, 1999, together with
the financial position of MVP Graphics, Inc. as of June 30, 1999.
The June 30, 1999 balance sheet for Venus Holdings Limited has been included
with the balance sheet of the Company as of June 30, 1999.
<TABLE>
<CAPTION>
Pro Forma Company
Company MVP Graphics Adjustments (a) Pro Forma
--------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 2,874 $ 84 $ -- $ 2,958
Accounts receivable 17,294 1,256 18,550
Inventories 2,354 37 2,391
Prepaid expenses and other 999 20 1,019
Deferred income taxes 541 - 541
Note receivable - current portion - 18 18
--------------- ------------------- ----------------- -------------
Total current assets 24,062 1,415 -- 25,477
Property and equipment-net 28,013 1,263 29,276
Other assets 1,122 101 1,223
Goodwill 33,497 -- 2,941 36,438
--------------- ------------------- ----------------- -------------
$ 86,694 $ 2,779 $ 2,941 $ 92,414
=============== =================== ================= =============
Liabilities and stockholdrs' equity
Current liabilities:
Current portion of long-term debt $ 1,215 $ 164 $ -- $ 1,379
Revolving line of credit 1,037 -- 1,037
Current portions of obligations under capital lease 1,526 -- 1,526
Accounts payable 8,302 358 8,660
Accrued expenses 7,447 167 7,614
Income taxes payable -- 95 95
Other liabilities -- 43
--------------- ------------------- ----------------- -------------
Total current liabilities 19,527 827 -- 20,311
Long-term debt, net of current portion 3,958 243 3,580 7,781
Revolving line of credit - net of current portion 17,034
Obiligations under capital leases-net of current portion 2,915 1,070 3,985
Deferred income taxes 2,193 -- 2,193
Other long-term liabilities 73 73
--------------- ------------------- ----------------- -------------
Total liabilities 45,700 2,140 3,580 34,343
Total stockholders equity 40,994 639 (639) 40,994
--------------- ------------------- ----------------- -------------
$ 86,694 $ 2,779 $ 2,941 $ 92,414
=============== =================== ================= =============
</TABLE>
F-32
<PAGE>
<TABLE>
Cunningham Graphics International, Inc.
Unaudited Pro Forma Income Statements
(in Thousands, Except per share data)
For the year ended December 31, 1998 of the Company, together with
the year ended December 31, 1998 of MVP Graphics, Inc. assuming the
MVP Graphics, Inc. acquisition occurred as of January 1, 1998 and
the year ended October 31, 1998 assuming the
Venus acquistion occurred as of November 1, 1997.
<CAPTION>
Historical
--------------------------------------------------------------------------------
Venus Pro Forma Pro Forma
Holdings MVP Adjustments Adjustments Company
Company Limited Graphics Venus MVP Pro Forma
------- ------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 53,146 $ 12,769 $ 7,101 $ -- $ -- $ 73,016
Operating expenses:
Costs of production 37,694 7,545 4,259 (223) (b) 49,275
Selling, general and administrative 7,783 3,454 2,450 (489) (b) (314) (f) 12,884
Depreciation and amortization 1,252 1,199 31 82 (c) 81 (g) 2,645
------------ ---------- --------- ---------- -------- -----------
46,729 12,198 6,739 (630) (233) 64,804
------------ ---------- --------- ---------- -------- -----------
Income from operations 6,417 571 362 630 233 8,213
Interest expense (400) (203) (183) (441) (d) (251) (h) (1,477)
Interest income 475 45 - 520
Other income (expense) 5 (10) 25 20
------------ ---------- --------- ---------- -------- -----------
Income before income taxes 6,497 403 204 189 (18) 7,276
Provision for income taxes 2,489 161 95 48 (e) 16 (i) 2,809
------------ ---------- --------- ---------- -------- -----------
Net income $ 4,008 $ 242 $ 109 $ 141 $ (34) $ 4,467
============ ========== ========= ========== ======== ===========
Pro Forma Data
Income before income taxes $ 6,497 $ 7,276
Pro forma provision for income taxes 2,809 (a) 3,129 (a)
------------ -----------
Pro forma net income $ 3,688 4,147
============ ===========
Pro forma earnings prer common share:
Basic $ 0.80 0.90 (j)
============ ===========
Diluted $ 0.80 0.89 (j)
============ ===========
Pro forma weighted average number
of common shares:
Basic 4,587,941 4,587,941
============ ===========
Diluted 4,637,024 4,637,024
============ ===========
</TABLE>
F-33
<PAGE>
Cunningham Graphics International, Inc.
Unaudited Pro Forma Income Statements
(in Thousands, Except per share data)
For the six months ended June 30, 1999 of the Company, together with
the six months ended June 30, 1999 as if the
acquisitions occurred as of January 1, 1998.
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------------------
Pro Forma Pro Forma
Venus Holdings MVP Adjustments Adjustments Company
Company Limited Graphics Venus MVP Pro Forma
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 40,864 $ 4,604 $ 3,886 $ -- $ -- $ 49,354
Operating expenses:
Costs of production 27,183 2,743 2,332 (107)(a) 32,151
Selling, general and administrative 6,821 1,417 930 (241)(a) 8,927
Non-recurring moving costs 840 -- 840
Depreciation and amortization 1,643 509 244 54 40 (e) 2,490
----------- ----------- ----------- ---------- ----------- -----------
36,487 4,669 3,506 (294) 40 44,408
----------- ----------- ----------- ---------- ----------- -----------
Income from operations 4,377 (65) 380 294 (40) 4,946
Interest expense (310) (145) -- (210)(c) (136)(f) (801)
Interest income -- 49 8 57
Other income (expense) 28 (174) 1 (145)
----------- ----------- ----------- ---------- ----------- -----------
Income before income taxes 4,095 (335) 389 84 (176) 4,057
Provision for income taxes 1,610 (69) 51 8 (d) 51 (g) 1,651
----------- ----------- ----------- ---------- ----------- -----------
Net income $ 2,485 $ (266) $ 338 $ 76 $ (227) $ 2,407
=========== =========== =========== ========== =========== ===========
Earnings per common share:
Basic $ 0.44
==========
Diluted $ 0.44
==========
Pro forma earnings per common share:
Basic 0.42 (h)
===========
Diluted 0.42 (h)
===========
Weighted average number of common shares:
Basic 5,674,615 5,674,615
=========== ===========
Diluted 5,711,188 5,711,188
=========== ===========
</TABLE>
F-34
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. Acquisitions
Acquisition of Venus Holdings Limited
On June 21, 1999, the Company acquired all of the issued and outstanding
capital stock of Venus Holdings Limited ("Venus"). The aggregate purchase price
of the acquisition was $6.1 million and was funded through the Company's
revolving line of credit. Under the terms of the purchase agreement, the Company
may be required to pay the sellers up to an additional $1.5 million, depending
upon the earnings, as defined, of Venus during the years 1999 through 2002. The
Company estimates that the goodwill generated from the acquisition will be
approximately $3.3 million, which will be amortized over 40 years.
The pro-forma balances were derived from the audited financial statements
for Venus for the twelve months ended October 31, 1998 expressed in Pounds
Sterling. The balances were converted into U.S. dollars using an exchange rate
of 1.67 for the balance sheet and an average rate of 1.67 for the income
statement per Pound Sterling.
Acquisition of MVP Graphics
On July 14, 1999, the Company acquired all of the issued and outstanding
capital stock of MVP Graphics, Inc. and SuperPack, Inc. (collectively, "MVP
Graphics"). The aggregate purchase price of the acquisition was $3.6 million and
was funded through the Company's revolving line of credit. Under the terms of
the purchase agreement, the Company may be required to pay the Sellers up to an
additional $1.2 million, depending upon the earnings, as defined, of MVP
Graphics during the years 1999 through 2002. The Company estimates the goodwill
generated from the transaction will be approximately $3.2 million and will be
amortized over 40 years.
F-35
<PAGE>
2. Pro Forma Adjustments
Statement of Operations for the year ended December 31, 1998
(a) The provision for income taxes represents the income tax provision that
would have been reported had the Company been subject to federal and
additional state income taxes during the entire year ended December 31,
1998. The provision for income taxes reflects an increase of $320 for the
period January 1, 1998 through April 22, 1998.
(b) Reflects the elimination of rent and utilities on a vacated facility of
$223, as well as moving and severance payments of $489.
(c) Reflects a net increase in depreciation and amortization expense of $82
attributable to the Venus transaction. Pro forma depreciation and
amortization expense was determined based on a preliminary allocation of
the purchase price to the operating assets acquired based on estimates of
fair values and a 40 year life for goodwill. The actual allocation of the
purchase price may differ from the estimated amounts for the following
reasons: i) further information learned on the fair value of the assets
acquired and (ii) the settlement of the earn-out amount in future years.
(d) Reflects the increase in interest expense of $441 as if the Company had
borrowed the purchase price from January 1, 1998 through December 31, 1998,
payable with interest expense of 7%.
(e) Reflects a pro forma provision for income taxes computed utilizing an
effective tax rate of 31% for Venus Holdings Limited. Income taxes give
effect to the non-deductibility of the goodwill.
(f) Reflects a decrease in owners compensation and benefits to reflect the
actual salaries and benefits to be incurred in accordance with the
employment contracts.
(g) Reflects a net increase in depreciation and amortization expense of $81
attributable to the MVP Graphics transaction. Pro forma depreciation and
amortization expense was determined based on a preliminary allocation of
the purchase price to the operating assets acquired based on estimates of
fair values and a 40 year life for goodwill. The actual allocation of the
purchase price may differ from the estimated amounts for the following
reasons: i) further information learned on the fair value of the assets
acquired and (ii) the settlement of the earn-out amount in future years.
(h) Reflects the increase in interest expense of $251 as if the Company had
borrowed the purchase price from January 1, 1998 through December 31, 1998,
payable with interest expense of 7%.
(i) Reflects a pro forma provision for income taxes computed utilizing an
effective tax rate of 41% for MVP Graphics. Income taxes give effect to the
non-deductibility of the goodwill.
(j) Pro forma earnings per share was calculated based on the historical
weighted average shares of the Company outstanding for the year ended
December 31, 1998.
F-36
<PAGE>
2. Pro Forma Adjustments
Balance Sheet at June 30, 1999
<TABLE>
<CAPTION>
MVP
GRAPHICS
-------------------
<S> <C>
(a) Purchase accounting adjustments to reflect the assets and liabilities
at estimated fair value (in thousands):
Goodwill 2,941
Stockholders equity: 639
Record financing used to complete acquisition:
Borrowings on line of credit (3,580)
</TABLE>
Statement of Operations for the six months ended June 30, 1999
(a) Reflects the elimination of rent and utilities on a vacated facility of
$107, as well as moving and severance payments of $241.
(b) Reflects a net increase in depreciation and amortization expense of $54
attributable to the Venus transaction. Pro forma depreciation and
amortization expense was determined based on a preliminary allocation of
the purchase price to the operating assets acquired based on estimates of
fair values and a 40 year life for goodwill. The actual allocation of the
purchase price may differ from the estimated amounts for the following
reasons: (i) further information learned on the fair value of the assets
acquired and (ii) the settlement of the earn-out amount in future years.
(c) Reflects the increase in interest expense of $210 as if the Company had
borrowed the purchase price from January 1, 1999 through June 21, 1999,
payable with interest expense of 7%.
(d) Reflects a pro forma provision for income taxes computed utilizing an
effective tax rate of 31% for Venus Holdings Limited. Income taxes give
effect to the non-deductibility of the goodwill.
(e) Reflects a net increase in depreciation and amortization expense of $40
attributable to the MVP Graphics transaction. Pro forma depreciation and
amortization expense was determined based on a preliminary allocation of
the purchase price to the operating assets acquired based on estimates of
fair values and a 40 year life for goodwill. The actual allocation of the
purchase price may differ from the estimated amounts for the following
reasons: i) further information learned on the fair value of the assets
acquired and (ii) the settlement of the earn-out amount in future years.
(f) Reflects the increase in interest expense of $136 as if the Company had
borrowed the purchase price from January 1, 1999 through June 30, 1999,
payable with interest expense of 7%.
(g) Reflects a pro forma provision for income taxes computed utilizing an
effective tax rate of 41% for MVP Graphics. Income taxes give effect to the
non-deductibility of the goodwill.
(h) Pro forma earnings per share was calculated based on the historical
weighted average shares of the Company outstanding for the six months ended
June 30, 1999.
F-37
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-52723) and in the related Prospectuses of our report dated
June 20, 1999 with respect to the financial statements of Venus Holdings
Limited. included in this Current Report (Form 8-K/A) of Cunningham Graphics
International, Inc. dated September 2, 1999.
/s/ Kingston Smith
London
September 2, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-52723) and in the related Prospectuses of our report dated
July 1, 1999 with respect to the financial statements of MVP Graphics, Inc.
included in this Current Report (Form 8-K/A) of Cunningham Graphics
International, Inc. dated September 2, 1999.
/s/ Campo & Scherr, L.L.C
Rockaway, New Jersey
September 2, 1999
