SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] - TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period from July 1, 1996 to September 30, 1996
Commission File Number: 0-22696
DISC GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3678012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Gilpin Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 234 -1400
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No
As of November 5, 1996, 5,027,762 shares of the Registrant's Common Stock, par
value $.01, were outstanding.
<PAGE>
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995........................................................1
Consolidated Statements of Income for the Three and Nine Months ended
September 30, 1996 and 1995..................................................2
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1996 and 1995..................................................3
Notes to Consolidated Financial Statements...................................4
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................8
PART II - OTHER INFORMATION
Other Information...........................................................13
Signatures..................................................................14
<PAGE>
<TABLE>
<CAPTION>
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30, 1996 and December 31, 1995
(unaudited)
September 30, December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,304 $ 1,309,677
Accounts receivable, net of allowance for doubtful accounts of
$863,000 and $494,000, respectively 10,477,355 7,200,428
Inventories 1,609,155 1,812,137
Prepaid expenses and other current assets 348,094 571,394
Current maturities of notes receivable 77,279 82,777
---------- ----------
Total current assets 12,545,187 10,976,413
Plant and equipment, net 8,377,381 6,776,378
Notes receivable, less current maturities - 59,937
Covenant not to compete, less accumulated amortization of $138,528
and $126,984, respectively - 11,544
Security deposits and other assets 219,487 285,647
Cost in excess of net assets acquired, net of amortization of $24,554 962,739 -
Total assets $22,104,794 $18,109,919
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of equipment notes payable $ 550,189 $ 386,787
Current maturities of capitalized lease obligations payable 739,892 584,635
Accounts payable and accrued expenses 4,997,080 2,857,055
Income taxes payable 426,498 105,084
--------- ---------
Total current liabilities 6,713,659 3,933,561
Notes payable to bank 2,093,998 3,000,000
Equipment notes payable, less current maturities 2,193,162 2,418,881
Capitalized lease obligations payable, less current maturities 2,276,002 963,950
Deferred income taxes 366,406 366,406
---------- ----------
Total liabilities 13,643,227 10,682,798
Stockholders' equity:
Preferred stock:
$.01 par value; authorized 5,000 shares; no shares issued and
outstanding - -
Common stock:
$.01 par value; authorized 20,000,000 shares; issued
5,036,262 and 4,962,188 shares, respectively 50,363 49,622
Additional paid in capital 5,087,378 4,948,119
Retained earnings 3,347,826 2,429,380
--------- ---------
8,485,567 7,427,121
Less: Treasury stock, at cost, 8,500 shares in 1996 (24,000) -
---------- ---------
Total stockholders' equity 8,461,567 7,427,121
Total liabilities and stockholders' equity $22,104,794 $18,109,919
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Three and Nine Months
Ended September 30, 1996 and September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $12,773,183 $10,395,195 $31,229,022 $27,460,591
Cost of sales 9,235,532 8,311,039 23,552,257 21,849,922
----------- ----------- ----------- -----------
Gross profit 3,537,651 2,084,156 7,676,765 5,610,669
Operating expenses:
Selling and shipping 1,072,468 770,769 2,560,719 2,184,651
General and administrative 1,046,703 735,879 2,898,678 2,163,137
--------- ---------- --------- ---------
Operating income 1,418,480 577,508 2,217,368 1,262,881
Interest expense, net 242,017 244,577 606,062 649,941
Loss on disposal of equipment - - - 4,471
---------- ----------- ---------- ----------
Income before provision for income taxes 1,176,463 332,931 1,611,306 608,469
Provision for income taxes 505,877 143,162 692,860 263,675
---------- ----------- ---------- ----------
Net income $670,586 $189,769 $918,446 $344,794
========== =========== ========== =========
Net Income per share $0.13 $0.08 $0.18 $0.15
========== =========== ========== =========
Weighted average number of shares
outstanding 5,029,599 2,247,120 4,996,988 2,247,120
========= ========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 918,446 $ 344,794
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,057,642 736,505
Loss on disposition of assets - 4,470
Increase in accounts receivable (1,562,088) (2,037,190)
Decrease (Increase) in inventory 430,439 (336,614)
Decrease (Increase) in prepaid expenses and other current assets 226,254 (97,129)
Increase in accounts payable and accrued expenses 1,438,126 359,035
Increase (Decrease) in income taxes payable 321,415 (10,915)
Increase in security deposits and other assets (269,312) (13,486)
----------- -----------
Total adjustments 1,642,476 (1,395,324)
----------- -----------
Net cash provided by (used in) operating activities 2,560,922 (1,050,530)
----------- -----------
Cash flows from investing activities:
Capital expenditures (109,309) (1,141,308)
Proceeds from sale of equipment - 21,520
Purchase of Pointille, Inc. (621,578) -
---------- -----------
Net cash used in investing activities (730,887) (1,119,788)
---------- -----------
Cash flows from financing activities:
Proceeds of secured bank loan payable, net of repayments (2,093,052) 1,961,974
Payments of notes receivable 65,435 235,203
Borrowings under long-term debt - 599,510
Payments of long-term debt (1,019,107) (621,103)
Decrease in paid in capital (35,000) -
Purchase of treasury stock (24,000) -
----------- ----------
Net cash provided by (used in) financing activities (3,105,724) 2,175,584
----------- ----------
Net increase (decrease) in cash (1,276,373) 5,266
----------- ----------
Cash, December 31 $1,309,677 $4,822
========== ==========
Cash, September 30 $33,304 $10,088
========== ==========
</TABLE>
Non-cash investing activities related to the purchase of Pointille are
described in note 2
See accompanying notes to consolidated financial statements
DISC GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Operation and Summary of Significant Accounting Policies:
General
The financial statements included herein have been prepared by Disc
Graphics, Inc. (the "Company") without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. While the
Company believes that the disclosures made are adequate to make the information
presented not misleading, it is recommended that these financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the year ended December 31, 1995 and the Company's Transition
Report on Form 10-K for the period ended December 31, 1995. The December 31,
1995 figures included herein were derived from the audited consolidated
financial statements. In the opinion of management, the information furnished
herein reflects all adjustments that are necessary to fairly present such
information. These adjustments consist only of normal recurring adjustments and
adjustments made for the acquisition of Pointille, Inc.
The Merger
On October 30, 1995, the Company, then known as RCL Capital Corp.
("RCL"), consummated the merger (the "Merger") pursuant to the Agreement and
Plan of Merger dated as of May 8, 1995 (the "Merger Agreement") between RCL and
Disc Graphics, Inc., a New York corporation ("Old Disc"). Pursuant to the Merger
Agreement, (i) Old Disc merged with and into RCL, (ii) RCL's name was changed to
Disc Graphics, Inc., and (iii) all of the outstanding shares of Class A Common
Stock, no par value, and Class B Common Stock, no par value, of Old Disc were
converted into (a) an aggregate of 3,100,000 shares of Common Stock of the
Company and (b) and an aggregate of 1,000,000 warrants to purchase an aggregate
of 1,000,000 shares of Common Stock of the Company, one-quarter of which shall
be exercised at a price of each of $7.00, $8.00, $9.00 and $10.00.
Potential Future Issuance of Shares of Common Stock by the Company
Pursuant to the Merger Agreement as modified by a certain Agreement
dated as of October 30, 1995 by and among certain stockholders of RCL (the "RCL
Stockholders") and the former shareholders of Old Disc (the "Old Disc
Shareholders") and RCL, if the Old Disc Shareholders subsequently determine from
time to time until up to five years after October 30, 1995 (the "Effective
Time") that, as of the Effective Time, either (i) RCL did not have cash or
marketable securities with a fair market value as of the Effective Time of not
less than $6,000,000 (the actual amount of cash and marketable securities held
by RCL as of the Effective Time, the "First Amount") or (ii) the cash and
marketable securities of RCL did not exceed all liabilities of RCL of any kind
or nature (whether fixed or contingent, matured or unmatured) (including,
without limitation, all liabilities based upon, relating to or arising from any
actions taken by or on behalf of RCL or the failure of RCL to take any actions
prior
DISC GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Operation and Summary of Significant Accounting Policies
(continued):
to the Effective Time or any facts or circumstances existing prior to the
Effective Time, which in any such case results in any liabilities, obligations
or claims against the Company after the Effective Time (all such liabilities
collectively, the "RCL Liabilities")), by not less than $6,000,000 (the actual
amount of cash and marketable securities held by RCL as of the Effective Time
less such liabilities, the "Second Amount"), then promptly upon notice of such
determination by the Old Disc Shareholders to the Company, the Company shall
issue to such Old Disc Shareholders, on a pro rata basis based on the number of
shares of Old Disc Common Stock held by such shareholders immediately prior to
the Effective Time, the number of shares of the Company's Common Stock (the "RCL
Designated Shares") sufficient (without duplication) to increase the percentage
ownership of the Company by all of such shareholders that such shareholders
would have had immediately after the Effective Time (excluding, any RCL
Indemnity Shares (as defined below) issued after the Effective Time) from 60.23%
to a percentage determined by the dividing (i) $9,075,000 by (ii) the sum of
$9,075,000 and the First Amount or the Second Amount, as the case may be. If, at
any time or from time to time, the excess of $6,000,000 over the First Amount or
the Second Amount is more than $100,000 on a cumulative basis, the number of
shares of the Company's Common Stock to be issued to such Old Disc Shareholders
pursuant to the immediately preceding sentence shall be equal to two times the
number of RCL Designated Shares and if, at any time or from time to time, such
excess is more than $1,000,000, the number of shares of the Company's Common
Stock to be issued to such Old Disc Shareholders shall be equal to three times
the number of RCL Designated Shares (The shares of the Company's Common Stock
issuable from time to time pursuant to this provision are collectively referred
to as the "RCL Indemnity Shares").
Notwithstanding the provision of the Merger Agreement described in the
immediately preceding paragraph, the RCL Stockholders and the Old Disc
Shareholders have entered into an agreement (the "Letter Agreement") pursuant to
which the RCL Stockholders will transfer to the Old Disc Shareholders' shares of
the Company's Common Stock owned by the RCL Stockholders instead of the Company
issuing certain shares of its Common Stock to the Old Disc Shareholders, but
only if and to the extent that net assets are between $4,900,00 and $5,304,750.
"Net assets" means RCL's cash and marketable securities at the Effective Time
less the RCL Liabilities.
Pursuant to the Merger Agreement and the Letter Agreement described
above, the RCL Stockholders, the Old Disc Shareholders and the Company have
agreed that the Company will issue 342,256 shares of its Common Stock to the Old
Disc Shareholders and the RCL Stockholders will transfer 60,000 shares of Common
Stock of the Company to the Old Disc Shareholders. It is expected that these
transactions will be completed by December 31, 1996.
Net Income Per Share
Net income per share is computed based upon the weighted average number
of shares outstanding for the period. Outstanding warrants were not included in
the computation as their effect is antidilutive to net income per share.
Amortization of Costs in Excess of Fair Market Value of Net Assets Acquired
Costs in excess of fair market value of net assets acquired are being
amortized over a period of 15 years by the straight-line method.
DISC GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Operation and Summary of Significant Accounting Policies
(continued):
Inventories
Inventories consist of the following:
September 30, December 31,
1996 1995
Raw materials $ 1,165,831 $ 1,327,496
Work-in-process 314,592 265,873
Finished goods 128,732 218,768
-------------- ------------
$ 1,609,154 $ 1,812,137
============== ============
Note 2 - Acquisition
On May 17, 1996, the Company acquired substantially all of the
assets and certain liabilities of Pointille, Inc., a California based printing
company ("Pointille") , for $621,578 in cash, the issuance of 74,074 shares of
the Company's Common Stock, and the issuance of a promissory note in the amount
of $330,000 (principal and interest), payable in 36 equal monthly installments
of principal and interest beginning on June 17, 1996 (the "Acquisition"). The
Company recorded the value of the 74,074 shares of the Company's Common Stock
issued at the estimated fair value at the date of the Acquisition. The
Acquisition was accounted for using the purchase method of accounting and in
accordance with generally accepted accounting principles. The net worth of
Pointille as of May 17, 1996 has not yet been finalized; therefore, an estimate
of the allocation of the purchase price was made on the basis of currently
available information.
The allocation of the purchase price of Pointille was as
follows:
Purchase price
Cash $621,578
Promissory note (present value) 299,708
Common Stock 175,000
Transaction Costs 120,031
---------
$1,216,317
Pointille's net asset value $229,024
Excess of cost over fair value of
business acquired $ 987,293
=========
DISC GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions (continued):
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments such as (i) additional
amortization expense due to goodwill resulting from the Acquisition and (ii) an
increased interest expense due to cash borrowed under the Company's financing
agreement with Fleet Bank for the payment of the purchase price and the
repayment of Pointille's bank line of credit and notes payable (which was
partially offset by the payment of Pointille's bank line of credit and notes
payable). These unaudited proforma results do not purport to be indicative of
the results of operations which actually would have resulted had the purchase
been effected on January 1, 1995, nor of future results of operations of the
consolidated entities. For purposes of pro forma and interim reporting, the
financial information of Pointille, which was on a February 28 fiscal year, was
adjusted to conform with the Company's reporting periods.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Pointille as if the
Acquisition had occurred January 1, 1995.
1996 1995
(thousands except per share amounts)
Net sales $35,054 $33,460
Net income $818 $280
Earnings per Common share $.16 $.12
DISC GRAPHICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On May 18, 1996, Disc Graphics, Inc., a Delaware corporation (the
"Company"), acquired substantially all of the assets and certain liabilities of
Pointille, Inc., a California corporation ("Pointille" or the "California
Office"), pursuant to an asset purchase agreement dated as of May 17, 1996, by
and among the Company, Pointille and the sole shareholder of Pointille (the
"Asset Purchase Agreement"). The purchase price consisted of $775,000 in cash,
74,074 shares of the Company's Common Stock, $.01 par value per share, and a
promissory note in the amount of $330,000, payable in 36 equal monthly
installments of principal and interest beginning on June 17, 1996.
Pointille was a manufacturer of packaging for the video, music, and CD
ROM software markets. The Company believes that the acquisition of the
California Office positions the Company to compete in the west coast markets,
particularly with respect to software packaging.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
RESULT OF OPERATIONS
NET SALES
Net sales for the three months ended September 30, 1996 were
$12,773,000, compared to $10,395,000 for the same period the prior year,
representing an increase of $2,378,000, or 22.9%. This increase was primarily
due to the acquisition of the California Office which had net sales of
$1,977,000. The categories of the business which experienced significant growth
in this quarter compared to the three months ended September 30, 1995 were
video/software packaging, which increased $1,089,000, or 42%, music/audio
packaging which increased $541,000, or 29%, and consumer product packaging,
which increased $402,000, or 12%. The growth in video/software packaging was
primarily due to the increase in CD ROM packaging sales in the Company's New
York and California offices. The impact to the Company of the general downturn
in the cassette segment of the music industry has been partially offset by the
$671,000 of music/audio packaging sales from the California Office.
Label and commercial sales increased $92,000 and $311,000, or 14% and 38%,
respectively, over the same period the prior year. Pharmaceutical/vitamin
packaging sales have declined by $54,000, or 5%, from $1,056,000 for the three
months ended September 30, 1996 to $1,002,000 during the same period of the
prior year.
GROSS PROFIT
Gross profit for the three months ended September 30, 1996 was
$3,538,000 (a 27.7% profit margin), compared to $2,084,000 (a 20% profit margin)
for the same period of the prior year, representing an increase of $1,454,000,
or 70%. The increase was due to a 22.9% increase in sales coupled with the
decline in cost as a percentage of sales. The decrease in cost of sales as a
percent of sales was a result of manufacturing efficiencies from improved
processes and the purchase of new equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative ("SG&A") expenses for the three
months ended September 30, 1996 were $2,119,000, compared to $1,507,000 for the
same period of the prior year, an increase of $612,000, or 41%. This increase in
SG&A expenses was due primarily to professional fees and the cost of insurance
related to the Company's public status and costs of the California Office.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1996 was
$244,000, compared to $245,000 for the same period of the prior year. Interest
expense includes interest on notes payable to the Company's bank lender and
capital lease obligations on equipment. There was no material change in interest
expense because debt reduction from the utilization of the proceeds of the
Merger described in note 1 to the consolidated financial statements contained
herein was offset by increased debt related to the acquisition of the California
Office and capital expenditures for equipment.
INCOME TAXES
The provision for income taxes for the three months ended September 30,
1996 was $506,000, compared to $143,000 for the same period of the prior year,
an increase of $363,000, or 253%. This increase was due to the increase in
pretax income of $844,000 at the effective tax rate of approximately 43%.
NET INCOME
Net income for the three months ended September 30, 1996 was $671,000,
compared to $190,000 for the same period of the prior year, an increase of
$481,000, or 253%. This increase in net income was a result of an increase in
net sales of 23% along with the management of manufacturing costs resulting in
cost of goods sold declining as a percentage of net sales from 80% in the three
months ended September 30, 1995 to 72% in the three months ended September 30,
1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
NET SALES
Net sales for the nine months ended September 30, 1996 were $31,229,000,
compared to $27,461,000 for the same period the prior year, representing an
increase of $3,768,000, or 13.7%. This increase was primarily due to the
acquisition of the California Office which had net sales of $2,763,000 for the
period from May 18, 1996 to September 30, 1996. The categories of the business
which experienced significant growth were video/software packaging, which
increased $1,994,000, or 31%, and consumer product packaging, which increased
$1,399,000, or 18%, over the same nine month period the prior year. The growth
in video/software packaging sales was primarily due to the increase in CD ROM
packaging sales in both the Company's New York and California offices. Label and
commercial sales increased $192,000 and $339,000, or 10% and 13%, respectively
over the nine month period in 1995.
Music/audio packaging sales decreased by $39,000, or 1%, from $5,468,000
to $5,429,000 for the first nine months of 1996, compared to the same period in
1995. The impact to the Company of the general downturn in the cassette segment
of the music industry has been partially offset by the $953,000 of music/audio
packaging sales from the California Office. Pharmaceutical/vitamin packaging
sales also decreased $121,000, or 3%, from $3,552,000 to $3,431,000, compared
with the same period the prior year.
GROSS PROFIT
Gross profit for the nine months ended September 30, 1996 was $7,677,000
(a 24.6% profit margin), compared to $5,611,000 (a 20.4% profit margin) for the
same period of the prior year, representing an increase of $2,066,000, or 37%.
The increase was due to an increase in sales coupled with the decline in cost of
goods sold as a percentage of sales and the addition of sales made by the
California Office. Sales made by the California Office resulted in gross profit
of $441,000 (a 15% profit margin). The decrease in cost was a result of
manufacturing efficiencies resulting from improved processes and the purchase of
equipment. The investment in more efficient equipment and the Company's work to
improve processes resulted in a four percent decrease in cost of goods sold as a
percentage of sales for the nine months ended September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the nine
months ended September 30, 1996 were $5,459,000, compared to $4,348,000 for the
same period of the prior year, an increase of $1,111,000, or 26%. This increase
in SG&A expenses was due primarily to professional fees and the cost of
insurance related to the Company's public status and costs of the California
Office.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1996 was
$649,000, compared to $650,000 for the same period of the prior year. Interest
expense includes interest on notes payable to the Company's bank lender and
capital lease obligations on equipment. There was no material change in interest
expense because debt reduction from the utilization of the proceeds of the
Merger described in note 1 to the consolidated financial statements contained
herein was offset by increased debt related to the acquisition of the California
Office and capital expenditures for equipment.
INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1996 was $693,000, compared to $264,000 for the same period of the prior year,
an increase of $429,000, or 163%. This increase was due primarily to the
increase in pretax income of $1,003,000 at the effective tax rate of
approximately 43%.
NET INCOME
Net income for the nine months ended September 30, 1996 was $918,000,
compared to $345,000 for the same period of the prior year, an increase of
$573,000, or 166%. This increase in net income was a result of an increase in
net sales of approximately 14% along with the management of manufacturing costs
resulting in the cost of goods sold declining as a percentage of net sales from
79.6% for the nine months ended September 30, 1995 to 75.4% for the same period
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of cash for the Company's business has been cash flow
from the operations and borrowings under the financing agreement with the
Company's bank lender (the "Financing Agreement"). As of September 30, 1996, the
Company had working capital of $5,832,000. Net cash used in operating activities
for the nine months ended September 30, 1996 was $2,536,000.
For the remainder of 1996, the Company anticipates capital expenditures
of $250,000 primarily for purchases of manufacturing equipment and information
systems. The Company's purchase of the California Office included a net cash
payment of $621,578 which the Company borrowed under its Financing Agreement.
The Financing Agreement allows the Company to borrow an amount equal to
the sum of 85% of eligible accounts receivable plus 70% of the value of rolled
paper inventory up to a maximum of $8,500,000. Amounts outstanding under the
Financing Agreement bear interest at an annual rate of 1% over the prime rate of
the Company's lender. As of September 30, 1996, the Company had approximately
$6,400,000 available for borrowing under the Financing Agreement. As of
September 30, 1996, the Company had borrowed approximately $2,094,000 and the
interest rate per annum thereon was 9.25%. The Company has substantially
completed negotiating a new financing agreement with its bank lender with a more
favorable interest rate than the current agreement.
Based on its existing Financing Agreement and income from operations,
the Company believes that it will have sufficient liquidity to meet its
operating needs and capital requirements through 1996. The Company may require
or choose to obtain additional borrowings to fund future capital expenditures
and/or acquisitions.
Part II - Other Information
Item 5. Other Information.
On July 1, 1996, the Company announced that it would spend up to $750,000
purchasing shares of its Common Stock and/or Warrants from time to time in the
market. As of September 30, 1996, the Company had spent $24,000 purchasing 8,500
shares at prices ranging between $2 3/4 to $2 7/8.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K:
On July 26, 1996, the Company filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K/A Amendment No. 1
(the "8-K Amendment") amending the Company's Current Report on Form 8-K dated
May 18, 1996 and filed with the Commission on June 3, 1996. The 8-K Amendment
reported Item 7 and included the following financial statements:
Pro Forma Condensed Combined Balance Sheet as of March 31, 1996
Pro Forma Condensed Combined Income Statement as of March 31, 1996
Pro Forma Condensed Combined Income Statement as of December 31, 1995
Notes to Pro Forma Condensed Combined Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 1996 /s/ Donald Sinkin
----------------- -------------------------
Date Donald Sinkin - President
November 14, 1996 /s/ Margaret Krumholz
----------------- -------------------------
Date Margaret Krumholz - Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
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0
0
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