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 April 1, 1996 to June 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 August 13, 1996, 5,036,262 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 June 30, 1996 and December 31, 1995 ....1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 1996 and 1995 ....................................................2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 ....................................................3
Notes to Consolidated Financial Statements ..............................4
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................9
PART II - OTHER INFORMATION
Other Information ........................................................13
Signatures ...............................................................14
<PAGE>
<TABLE>
<CAPTION>
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
June 30, December 31,
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 31,784 $ 1,309,677
Accounts receivable, net of allowance for
doubtful accounts of $715,000 and $494,000, respectively 9,454,893 7,200,428
Inventories 2,037,275 1,812,137
Prepaid expenses and other current assets 346,932 571,394
Current maturities of notes receivable 73,384 82,777
Prepaid taxes 44,954 -
------------ ----------
Total current assets 11,989,222 10,976,413
Plant and equipment, net 8,662,738 6,776,378
Notes receivable, less current maturities 1,466 59,937
Covenant not to compete, less accumulated amortization
OF $138,528 AND $126,984, respectively - 11,544
Security deposits and other assets 364,418 285,647
Cost in excess of net assets acquired, net 599,708 -
------------- -------------
Total assets $21,617,552 $18,109,919
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of equipment notes payable $ 511,951 $ 386,787
Current maturities of capitalized
lease obligations payable 798,188 584,635
Accounts payable and accrued expenses 4,878,081 2,857,055
Income taxes payable - 105,084
--------- ----------
Total current liabilities 6,188,220 3,933,561
Notes payable to bank 2,352,892 3,000,000
Equipment notes payable, less current maturities 2,472,189 2,418,881
Capitalized lease obligations payable,
less current maturities 2,422,864 963,950
Deferred income taxes 366,406 366,406
--------- ----------
Total liabilities 3,802,571 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 and outstanding 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 2,677,240 2,429,380
----------- ---------
Total stockholders' equity 7,814,981 7,427,121
Total liabilities and stockholders' equity $21,617,552 $18,109,919
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1996 and June 30, 1995
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $10,151,518 $8,552,358 $18,455,839 $17,065,396
Cost of Sales 7,744,549 6,831,896 14,316,725 13,538,883
----------- ----------- ------------- ------------
Gross profit 2,406,969 1,720,462 4,139,114 3,526,513
Operating expenses:
Selling and shipping 832,083 713,266 1,488,251 1,413,882
General and administrative
expense 984,671 715,418 1,851,975 1,427,258
--------- --------- --------- ---------
Operating income 590,215 291,778 798,888 685,373
Interest expense, net 185,366 210,736 364,045 405,364
Loss on disposal of equipment - - - (4,471)
-------- --------- ---------- -----------
Income before provision for
income taxes 404,849 81,042 434,843 275,538
-------- --------- ---------- ---------
Provision for income taxes 174,086 34,849 186,983 120,514
--------- ----------- --------- ----------
Net income $230,763 $46,193 $247,860 $155,024
========= ========= ========== ========
Net income per share $0.05 $0.02 $0.05 $0.07
======== ========== ========== ==========
Weighted average number
of shares outstanding 4,998,818 2,247,120 4,980,507 2,247,120
========= =========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
DISC GRAPHICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 1996 and June 30, 1995
June 30, 1996 June 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $247,860 $155,025
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 686,977 471,710
Loss on disposition of assets - 4,470
Decrease (increase) in accounts receivable (539,526) 165,752
Decrease (increase) in inventory 2,319 (396,851)
Decrease (increase) in prepaid expenses and other current assets 227,416 (107,909)
Increase in prepaid taxes (44,954) -
Increase in accounts payable and accrued expenses 1,319,126 20,633
Decrease in income taxes payable (105,083) (140,534)
Increase in security deposits and other assets (75,896) (133,284)
------------- -----------
Total adjustments 1,470,279 (116,013)
-----------
Net cash provided by operating activities 1,718,139 39,012
-------------- -----------
Cash flows from investing activities:
Capital expenditures - (228,101)
Proceeds from sale of equipment - 21,520
Purchase of Pointille (621,578) -
-------------- -----------
Net cash used in investing activities (621,578) (206,581)
-------------- -----------
Cash flows from financing activities:
Proceeds of secured bank loan payable, net of repayments (1,834,158) 342,220
Payments of notes receivable 67,864 230,806
Payments of long-term debt (573,160) (405,930)
Decrease in paid in capital (35,000) -
-------------- ----------
Net cash provided by (used in) financing activities (2,374,454) 167,096
-------------- ----------
Net decrease in cash (1,277,893) (473)
-------------- ----------
Cash, December 31 $1,309,677 $4,822
============== ==========
Cash, June 30 $31,784 $4,349
============== ==========
Non-cash investing activities related to the purchase of Pointille are
described in footnote 2
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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. Pursuant to the merger agreement
discussed below, the Company's name was changed, effective October 30, 1995,
from RCL Capital Corp. to Disc Graphics, Inc. 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
be read in conjunction with the audited financial statements and the
notes thereto for the year ended December 31, 1995. The Company also believes
that this document be read in conjunction with the Company's Transition Report
on Form 10-K for the period ended December 31, 1995. The December 31, 1995
figures were derived from the audited consolidated financial statements. In the
opinion of management, the information furnished reflects all adjustments that
are necessary to fairly present such information. These adjustments consist only
of normal recurring adjustments.
Organization and Operation:
The Company was incorporated in the State of Delaware on August 3, 1992
under the name RCL Capital Corp. ("RCL") for the purpose of raising capital to
be used to make an acquisition of an operating business. In August 1992, the
Company issued an aggregate of 377,160 shares of common stock, $.01 par value
per share ("Common Stock") for an aggregate purchase price of $17,960, or
approximately $.05 per share. In October 1992, the Company issued an aggregate
of 753,060 shares of Common Stock for an aggregate purchase price of $35,860, or
approximately $.05 per share. On July 19, 1993, the Company effected an
approximate .375 for 1 stock split which reduced the number of outstanding
shares of Common Stock at that time from 5,382,000 to 2,018,250 and on September
29, 1993, the Company effected an approximate .56 for 1 stock split which
reduced the number of outstanding shares of Common Stock at that time from
2,018,250 to 1,130,220. All share data included in these financial statements
(including the notes) is presented on a post-split basis. On October 29, 1993,
the Company repurchased an aggregate of 233,100 shares of Common Stock for an
aggregate purchase price of $11,100, or approximately $.05 per share, from
certain of its officers and directors. The shares were canceled at the time of
their repurchase.
DISC GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Organization, Operation and Summary of Significant Accounting Policies
(Continued):
Organization and Operations (Continued):
The Merger
On October 30, 1995, 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"). The Merger was subject to, among other things, approval by RCL's
stockholders, which approval was obtained at a special meeting of stockholders
held on October 27, 1995. 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) 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 $6,000,00 (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 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 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 Disc Common Stock to the Old Disc Shareholders, but only if
and to the extent that net assets are between $4,900,000 and $5,304,750. "Net
assets" means RCL's cash and marketable securities at the Effective Time less
the RCL Liabilities.
It is anticipated that in addition to shares of the Company's Common Stock
to be transferred by the RCL Stockholders to the Old Disc Shareholders, the
Company will be required to issue approximately 342,000 RCL Indemnity Shares to
the Old Disc Shareholders for no additional consideration.
Net Income Per Share:
Net income per share is computed based upon the weighted average number of
shares outstanding for the period. The computation is presented as if the
reverse stock splits referred to above had occurred as of the date of
incorporation. Outstanding warrants were not included in the computation as
their effect is anti-dilutive.
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.
Inventories:
Inventories consist of the following:
June 30, December 31,
1996 1995
Raw Materials $1,333,762 $1,327,496
Work-in-process 588,526 265,873
Finished Goods 114,987 218,768
---------- ----------
$2,037,275 $1,812,137
=========== ==========
Note 2 -- Acquisitions
As of May 18, 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 shares of the Company's Common Stock 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
---------
$1,096,286
Pointille's net asset value $499,578
---------
Excess of cost over fair value of
business acquired $599,708
=========
These unaudited pro forma results have been prepared for comparative
purposes only and include, among other adjustments, the following: additional
amortization expense as a result of goodwill and an increased interest expense
due to borrowings 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. They 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 was adjusted to conform with the Company's reporting
periods. The pro forma results were combined to compare the same periods.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Pointille,
Inc. as if the Acquisition had occurred on January 1, 1995.
1996 1995
(thousands except per share amounts)
Net Sales $21,281 $21,134
Net Income (Loss) $147 ($ 38)
Earnings (Loss) Per Common Share $.03 ($.01)
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 (the "Acquisition") substantially all of the assets and
certain liabilities of Pointille, Inc., a California corporation ("Pointille"),
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 $621,578 in cash, 74,074
shares of the Company's common stock, $.01 par value per share ("Common Stock")
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.
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995
- -----------------------------------------------------------------------------
Results of Operations
- ---------------------
Net Sales
- ---------
Net sales for the six months ended June 30, 1996 were $18,456,000, compared
to $17,065,000 for the same period the prior year, representing an increase of
$1,391,000, or 8.2%. This increase was primarily due to the acquisition of
Pointille effective May 18, 1996. Pointille had net sales of $786,000 for the
period from May 18, 1996 to June 30, 1996. The categories of the business which
experienced significant growth were video/software packaging, which increased
$907,000, or 24%, and consumer product packaging, which increased $999,000, or
24%. The growth in video/software packaging sales was due primarily to the
increase in CD ROM packaging sales in both the Company's New York and California
offices.
Label and commercial sales increased $108,000 and $29,000, or 8% and 2%,
respectively. Music/audio packaging continued to be impacted by the general
downturn in the music industry with a decrease in sales of $584,000, or 16%, for
the first six months of 1996, compared to the same period in 1995.
Pharmaceutical/vitamin packaging sales also experienced a slight downturn of
$61,000, or 2%, compared with the comparable period the prior year.
Gross Profit
- ------------
Gross profit for the six months ended June 30, 1996 was $4,139,000 (a 22%
profit margin), compared to $3,527,000 (a 21% profit margin) for the same
period of the prior year, representing an increase of $612,000, or 17%. The
increase was due to an increase in sales coupled with a decline in cost as a
percentage of sales and the acquisition of Pointille. The decrease in cost was a
result of manufacturing efficiencies resulting from improved processes and
equipment. The acquisition of Pointille resulted in an increase in gross profit
of $104,000 (a 13% profit margin on Pointille sales).
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the six months
ended June 30, 1996 were $3,340,000, compared to $2,841,000 for the same period
of the prior year, an increase of $499,000, or 18%. This increase was due
primarily to professional fees and the cost of insurance related to the
Company's public status and costs related to the acquisition of Pointille.
Interest Expense
- ----------------
Interest expense for the six months ended June 30, 1996 was $405,000,
compared to $405,000 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 change in interest expense because
debt reduction from the utilization of the Merger proceeds was offset by
increased debt related to the acquisition of Pointille and capital expenditures
for equipment.
Income Taxes
- ------------
The provision for income taxes for the six months ended June 30, 1996 was
$187,000, compared to $121,000 for the same period of the prior year, an
increase of $66,000, or 55%. This increase was due primarily to the increase in
pretax income of $159,000 at the effective tax rate of approximately 43%.
Net Income
- ----------
Net income for the six months ended June 30, 1996 was $248,000, compared to
$155,000 for the same period of the prior year, an increase of $93,000, or 60%.
This increase was a result of an increase in net sales of approximately 8%,
along with the management of manufacturing costs resulting in cost of goods sold
declining as a percentage of net sales from 79% in 1995 to 78% in 1996. Although
the acquisition of Pointille resulted in an increase in net sales, there was
only a break-even effect on net income.
Three Months Ended June 30, 1996 Compared to the Three Months Ended June
30, 1995
- ------------------------------------------------------------------------
Net Sales
- ---------
Net sales for the three months ended June 30, 1996 were $10,152,000,
compared to $8,552,000 for the same period the prior year, representing an
increase of $1,600,000, or 18.7%. This increase was primarily due to the
acquisition of Pointille, with net sales of $786,000 from May 18, 1996 to June
30, 1996. The categories of the business which experienced significant growth
were video/software packaging, which increased $669,000, or 37%, and consumer
product packaging, which increased $935,000, or 41%. The growth in
video/software packaging was due primarily to the increase in CD ROM packaging
sales in the Company's New York and California offices.
Label, commercial sales and pharmaceutical/vitamin packaging sales
increased $78,000, $13,000 and $48,000 or 13%, 2% and 4%, respectively, over the
same period the prior year. Music/audio packaging continued to be impacted by
the general downturn in the music industry with a decline of $150,000, or 8%,
for the three months ended June 30, 1996, compared to the same period in 1995.
The decline in this segment was partially offset by the acquisition of Pointille
which contributed $282,000, or 17%, of music/audio sales in the quarter.
Gross Profit
- ------------
Gross profit for the three months ended June 30, 1996 was $2,407,000 (a 24%
profit margin), compared to $1,720,000 (a 20% profit margin) for the same period
of the prior year, representing an increase of $687,000, or 40%. The increase
was due to the 18.7% increase in sales coupled with the decline in cost as a
percentage of sales. The decrease in cost was a result of manufacturing
efficiencies resulting from improved processes and equipment.
Selling, General and Administrative Expenses
- --------------------------------------------
SG&A expenses for the three months ended June 30, 1996 were $1,817,000,
compared to $1,429,000 for the same period of the prior year, an increase of
$388,000, or 27%. This increase was due primarily to professional fees and the
cost of insurance related to the Company's public status.
Interest Expense
- ----------------
Interest expense for the three months ended June 30, 1996 was $196,000,
compared to $207,000 for the same period of the prior year, a decrease of
$11,000, or 5%. Interest expense includes interest on notes payable to the
Company's bank lender and capital lease obligations on equipment. This decrease
was due to debt reduction from the utilization of the Merger proceeds offset to
a lesser extent by an increased debt related to the acquisition of Pointille and
capital expenditures for equipment.
Income Taxes
- ------------
The provision for income taxes for the three months ended June 30, 1996 was
$174,000, compared to $35,000 for the same period of the prior year, an increase
of $139,000, or 397%. This increase was due primarily to the increase in pretax
income of $324,000 at the effective tax rate of approximately 43%.
Net Income
- ----------
Net income for the three months ended June 30, 1996 was $231,000, compared
to $46,000 for the same period of the prior year, an increase of $185,000, or
402%. This increase was a result of an increase in net sales of 18.7% along with
the management of manufacturing costs resulting in cost of goods sold declining
as a percentage of net sales from 80% in 1995 to 76% in 1996. Although the
acquisition of Pointille resulted in an increase in net sales, there was only a
break-even effect on net income.
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 June 30, 1996, the
Company had working capital of $5,801,000. Net cash provided by operating
activities for the six months ended June 30, 1996 was $1,718,000, due to general
business growth.
The Company anticipates capital expenditures of $500,000 for the
remainder of 1996, primarily for purchases of manufacturing equipment and
information systems. The Company's investment in the acquisition of Pointille
included a net cash payment of $622,000 which was funded through the Company's
Financing Agreement.
The Company's Financing Agreement allows for 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 1% over the prime
rate of the Company's lender. As of June 30, 1996, the Company had approximately
$6,100,000 available for borrowing under the Financing Agreement. As of June 30,
1996, the Company had borrowed approximately $2,353,000 and the interest rate
per annum thereon was 9.25%
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 4. Submission of Matters to a Vote of Security Holders
On May 14, 1996, the Company held its Annual Meeting of Stockholders.
Seymour W. Zises was elected a Class I Director by a vote of 3,955,680 for,
4,000 against, with 0 abstaining and 1,002,508 broker non-votes. Mark L.
Friedman was elected a Class I Director by a vote of 3,955,680 for, 4,000
against, with 0 abstaining and 1,002,508 broker non-votes. In addition,
Stockholders approved the appointment of KPMG Peat Marwick as independent
auditors for 1996 by a vote of 3,955,680 for, 2,000 against, with 2,000
abstaining and 1,002,508 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K:
On June 3, 1996, the Company filed a Current Report on Form 8-K
dated May 18, 1996 (the "May 8-K"). The May 8-K reported Items 2 and 7 and
included the following financial statements for Pointille, Inc.:
Balance Sheet dated February 29, 1996
Statement of Operations and Retained Earnings for the Year
Ended February 29, 1996
Statement of Cash Flows for the Year Ended February 29, 1996
Notes to Financial Statements
On July 26, 1996, the Company filed a Current Report on Form 8-K/A
Amendment No. 1 (the "8-K Amendment"), amending the May 8-K. The 8-K Amendment
reported Item 7 and included the following pro forma financial statements for
the Company and Pointille:
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
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on behalf by the
undersigned thereunto duly authorized.
DISC GRAPHICS, INC.
--------------------
(Registrant)
August 14, 1996 /s/ Donald Sinkin
-------------- -------------------------
Date Donald Sinkin - President
August 14, 1996 /s/ Margaret Krumholz
--------------- -------------------------------------------
Date Margaret Krumholz - Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 31,784
<SECURITIES> 0
<RECEIVABLES> 10,244,743
<ALLOWANCES> (715,000)
<INVENTORY> 2,037,275
<CURRENT-ASSETS> 11,989,222
<PP&E> 15,839,826
<DEPRECIATION> 7,177,088
<TOTAL-ASSETS> 21,617,552
<CURRENT-LIABILITIES> 6,188,220
<BONDS> 8,558,084
0
0
<COMMON> 50,363
<OTHER-SE> 7,764,618
<TOTAL-LIABILITY-AND-EQUITY> 21,617,552
<SALES> 10,151,518
<TOTAL-REVENUES> 10,151,518
<CGS> 7,744,549
<TOTAL-COSTS> 7,744,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106,286
<INTEREST-EXPENSE> 185,366
<INCOME-PRETAX> 404,849
<INCOME-TAX> 174,086
<INCOME-CONTINUING> 230,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,763
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
