SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
Commission File No. 1-14126
UNIDIGITAL INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3856672
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
229 West 28th Street, New York, New York 10001
----------------------------------------------
(Address of Principal Executive Offices)
(212) 244-7820
---------------------------
(Issuer's Telephone Number,
Including Area Code)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes: X No:
----- -----
State the number of shares outstanding of each of the Issuer's classes of
common stock, as of March 31, 2000:
Class Number of Shares
- ----- ----------------
Common Stock, $.01 par value 6,127,067
Transitional Small Business Disclosure Format:
Yes: No: X
----- -----
UNIDIGITAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 1
CONSOLIDATED BALANCE SHEETS
as at February 29, 2000 (unaudited)
and August 31, 1999 (audited)............................... 2
CONSOLIDATED INCOME STATEMENTS
For the Three Months and Six Months Ended
February 29, 2000 and February 28, 1999
(unaudited)................................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
February 29, 2000 and February 28, 1999
(unaudited)................................................. 4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)...................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 13
General..................................................... 13
Results of Operations....................................... 13
Liquidity, Capital Resources and Other Matters.............. 17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................ 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................ 19
Item 2. Changes in Securities and Use of Proceeds................ 19
Item 4. Submission of Matters to a Vote of Security Holders...... 20
Item 5. Other Information........................................ 21
Item 6. Exhibits and Reports on Form 8-K......................... 21
SIGNATURES.......................................................... 22
-i-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-1-
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
FEBRUARY 29, AUGUST 31,
2000 1999
-------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 760,000 $ 734,000
Accounts receivable (net allowance of $999,000
and $744,000 at February 29, 2000 and
August 31, 1999, respectively)............................... 26,413,000 16,788,000
Building available for sale.................................... -- 1,488,000
Prepaid expenses............................................... 3,824,000 2,600,000
Deferred tax asset............................................. 1,730,000 2,000,000
Other current assets........................................... 2,548,000 2,356,000
------------ ----------
Total current assets....................................... 35,275,000 25,966,000
Property and equipment, net...................................... 16,171,000 15,920,000
Deferred tax asset............................................... 5,730,000 5,606,000
Deferred financing costs, net.................................... 4,829,000 1,550,000
Intangible assets, net........................................... 66,694,000 67,672,000
Other assets..................................................... 2,070,000 1,922,000
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Total assets............................................... $ 130,769,000 $118,636,000
============ ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.......................... $ 12,830,000 $ 16,198,000
Current portion of capital lease obligations................... 2,619,000 3,157,000
Current portion of long-term debt.............................. 1,351,000 1,384,000
Income taxes payable........................................... 837,000 1,065,000
Loans and notes payable to stockholders........................ 100,000 619,000
Other current liabilities...................................... -- 34,000
------------ -----------
Total current liabilities.................................. 17,737,000 22,457,000
Capital lease obligations, net of current portion................ 2,247,000 2,898,000
Long-term debt, net of current portion........................... 89,473,000 76,263,000
Other non-current liabilities.................................... 645,000 707,000
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Total liabilities.......................................... 110,102,000 102,325,000
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STOCKHOLDERS' EQUITY
Preferred stock -- authorized 10,000,000 shares,
$.01 par value each; none issued or outstanding................ -- --
Common stock -- authorized 25,000,000 shares,
$.01 par value each; 6,087,067 and 5,926,618 shares
issued and outstanding at February 29, 2000 and
August 31, 1999, respectively.................................. 61,000 59,000
Issuable common stock............................................ 909,000 1,450,000
Additional paid-in capital....................................... 26,046,000 21,729,000
Accumulated deficit.............................................. (5,719,000) (6,585,000)
Accumulated other comprehensive loss............................. (630,000) (342,000)
------------ -----------
Total stockholders' equity................................. 20,667,000 16,311,000
------------ -----------
Total liabilities and stockholders' equity................. $ 130,769,000 $118,636,000
============ ===========
The Notes to Consolidated Financial Statements are made a part hereof.
-2-
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
------------------------------
(UNAUDITED)
THREE MONTHS ENDED, SIX MONTHS ENDED,
-------------------------------- ---------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Net sales..................................... $ 23,009,000 $ 15,407,000 $ 47,012,000 $ 27,875,000
------------ ----------- ------------ -----------
EXPENSES
Cost of sales................................. 11,980,000 6,586,000 25,197,000 13,071,000
Selling, general and
administrative expenses.................... 7,442,000 6,104,000 14,627,000 10,452,000
Expenses incurred due to restructuring........ -- -- -- 196,000
------------ ----------- ------------ -----------
Total operating expenses...................... 19,422,000 12,690,000 39,824,000 23,719,000
------------ ----------- ------------ -----------
Income from continuing operations............ 3,587,000 2,717,000 7,188,000 4,156,000
Interest expense.............................. (2,460,000) (1,478,000) (4,818,000) (2,468,000)
Interest expense - deferred financing costs... (211,000) (135,000) (313,000) (191,000)
Other (expense) income........................ (166,000) (47,000) (424,000) 213,000
------------ ----------- ------------ -----------
Income from continuing operations before
income taxes................................ 750,000 1,057,000 1,633,000 1,710,000
Provision for income taxes.................... 468,000 492,000 767,000 774,000
------------ ----------- ------------ -----------
Net income from continuing operations........... 282,000 565,000 866,000 936,000
Loss from operations of discontinued segment
(net of tax benefit of $90,000 and $92,000,
respectively................................... -- (111,000) -- (112,000)
------------ ----------- ------------ -----------
Net income...................................... $ 282,000 $ 454,000 $ 866,000 $ 824,000
============ ============ ============ ===========
Basic earnings per common share:
Earnings from continuing operations........... $ 0.05 $ 0.11 $ 0.14 $ 0.18
Loss from discontinued operations............. -- (0.02) -- (0.02)
------------ ------------ ------------ -----------
Net income...................................... $ 0.05 $ 0.09 $ 0.14 $ 0.16
============ ============ ============ ===========
Diluted earnings per common share:
Earnings from continuing operations........... $ 0.04 $ 0.10 $ 0.14 $ 0.18
Loss from discontinued operations............. -- (0.02) -- (0.02)
------------ ------------ ------------ -----------
Net income...................................... $ 0.04 $ 0.08 $ 0.14 $ 0.16
============ ============ ============ ===========
Shares used to compute net income per share:
Basic......................................... 6,073,880 5,247,248 6,014,871 5,024,420
============ ============ ============ ===========
Diluted....................................... 6,281,628 5,381,070 6,215,484 5,124,166
============ ============ ============ ===========
The Notes to Consolidated Financial Statements are made a part hereof.
-3-
UNIDIGITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
SIX MONTHS ENDED,
---------------------------------
FEBRUARY 29, FEBRUARY 28,
2000 1999
---- ----
OPERATING ACTIVITIES
Net income.......................................................... $ 866,000 $ 824,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization.................................. 4,533,000 3,509,000
Provision for deferred income taxes............................ 8,000 57,000
Provision for bad debts........................................ 136,000 233,000
Gain (loss) on sale of property and equipment.................. 184,000 (313,000)
Changes in assets and liabilities net of effects of businesses
acquired:
Accounts receivable............................................ (9,810,000) (3,585,000)
Prepaid expenses and other current assets...................... (1,842,000) (2,199,000)
Other assets................................................... (312,000) (282,000)
Accounts payable and accrued expenses.......................... (5,339,000) (2,383,000)
Income taxes payable........................................... (222,000) 485,000
----------- -----------
Net cash used in operating activities............................... (11,798,000) (3,654,000)
----------- -----------
INVESTING ACTIVITIES
Additions to property and equipment................................. (1,830,000) (711,000)
Proceeds from sale of property and equipment........................ 1,818,000 941,000
Business acquisitions............................................... (651,000) (24,789,000)
----------- -----------
Net cash used in investing activities............................... (663,000) (24,559,000)
----------- -----------
FINANCING ACTIVITIES
Net proceeds from bank borrowings................................... 27,685,000 29,751,000
Payments of capital lease obligations............................... (1,364,000) (1,157,000)
Payments of long-term debt.......................................... (13,656,000) (208,000)
Stockholder repayments.............................................. (420,000) (50,000)
Warrants exercised.................................................. 242,000 --
Proceeds from the sale of common stock, net of issuance costs....... -- 92,000
----------- -----------
Net cash provided by financing activities........................... 12,487,000 28,428,000
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Effect of foreign exchange rates on cash............................ -- (49,000)
----------- -----------
Net increase in cash and cash equivalents........................... 26,000 166,000
Cash and cash equivalents at beginning of period.................... 734,000 287,000
----------- -----------
Cash and cash equivalents at end of period.......................... $ 760,000 $ 453,000
=========== ===========
SUPPLEMENTAL DISCLOSURES
Interest paid....................................................... $ 3,178,000 $ 3,385,000
=========== ===========
Income taxes paid................................................... $ 687,000 $ 192,000
=========== ===========
Noncash transactions:
Equipment acquired under capital lease obligations.................. $ 213,000 $ 2,597,000
=========== ===========
Stock issued for business acquisitions.............................. $ -- $ 7,886,000
=========== ===========
Warrants issued for business acquisitions........................... $ -- $ 931,000
=========== ===========
Warrants issued for additional financing (revised).................. $ 2,500,000 $ 308,000
=========== ===========
Business acquisitions (net of liabilities of $5,010,000)............ $ -- $ 2,466,000
=========== ===========
Warrants issued in lieu of cash interest payments................... $ 1,035,000 $ --
=========== ===========
The Notes to Consolidated Financial Statements are made a part hereof.
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UNIDIGITAL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(unaudited)
NOTE A - BASIS OF PRESENTATION:
The information presented for February 29, 2000, and for the three-month
and the six-month periods ended February 29, 2000 and February 28, 1999 is
unaudited, but, in the opinion of the management of Unidigital Inc., its
wholly-owned subsidiaries and their subsidiaries, affiliated companies and
predecessors (collectively, the "Company"), the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) which the Company considers necessary for the fair
presentation of the Company's financial position as of February 29, 2000 and the
results of its operations and its cash flows for the three-month and the
six-month periods ended February 29, 2000 and February 28, 1999.
The consolidated financial statements included herein have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended August 31, 1999, which
were included as part of the Company's Annual Report on Form 10-K.
The consolidated financial statements include the accounts of Unidigital
Inc. and its direct and indirect subsidiaries. All significant intercompany
balances have been eliminated.
Interim results are not necessarily indicative of results that may be
expected for the full fiscal year.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS:
The Company is a media services company that provides large and grand
format digital image solutions combined with a full suite of digital "premedia"
(previously referred to as prepress) services to advertising agencies,
retailers, publishers, graphic design firms, consumer product companies,
government agencies and marketing and communications firms in the United States,
the United Kingdom and Germany. During 1999, the Company began delivering its
services through two principal business divisions: (i) the Media Solutions
division creates and produces large and grand format images for out-of-home
advertising and develops new media concepts; and (ii) the Premedia Services
division provides digital premedia, including retouching and short-run digital
printing services. During 1999, the various operating subsidiaries of the
Company were grouped into the aforementioned business divisions and the Company
discontinued its on-demand print and prepress business segment.
-5-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
FOREIGN CURRENCY TRANSLATION:
Balance sheet accounts of the Company's United Kingdom and Germany
subsidiaries are translated using year-end exchange rates. Statements of
operations accounts are translated at monthly average exchange rates. The
resulting translation adjustment is recorded in a separate component of
stockholders equity called "Accumulated other comprehensive income (loss)" and
is included in determining comprehensive income (loss).
EARNINGS PER SHARE:
The following table sets forth the computation of basic and dilutive
earnings per share:
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------------- ----------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- ----
Numerator for basic and diluted earnings per
share-net income available for common
stockholders................................... $ 282,000 $ 454,000 $ 866,000 $ 824,000
=========== =========== =========== ==========
Denominator:
Denominator for basic earnings per share-
weighted average shares...................... 6,073,880 5,247,248 6,014,871 5,024,420
Effect of dilutive securities:
Stock options................................ 172 17,180 2,536 11,534
Warrants..................................... 207,576 116,642 198,077 88,212
----------- ----------- ----------- ----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions.......................... 6,281,628 5,381,070 6,215,484 5,124,166
=========== =========== =========== ==========
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
THREE MONTHS ENDED, SIX MONTHS ENDED,
---------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---------------------------------------------------------------------------
Stock Options................................ 1,073,860 559,798 1,071,316 559,798
Warrants..................................... 1,854,813 342,000 1,864,312 342,000
-6-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). Statement 133 must first be applied
in the first quarter of fiscal years that begin after June 15, 2000. Statement
133 will require the Company to recognize all derivatives on the consolidated
balance sheets at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivatives change in fair value will immediately be recognized in earnings.
Management has determined that Statement 133 will not have a significant effect
on the earnings and financial position of the Company.
DERIVATIVE FINANCIAL INSTRUMENTS:
The Company has an interest rate collar agreement to modify the interest
characteristics of certain of its outstanding long-term debt. The interest rate
collar agreement is designated with all or a portion of the principal balance
and a term that does not coincide with the specific debt obligation.
-7-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE C - LONG-TERM DEBT:
Long-term debt consists of the following:
FACILITY
AMOUNT AMOUNT OUTSTANDING
FEBRUARY 29, FEBRUARY 29, AUGUST 31,
2000 2000 1999
-------------------------------------------------
Revolving line of credit; interest at the prime rate or at the
eurodollar rate, as defined, plus an applicable margin, all as
defined, ranging from 1.0% to 3.25%. $80,000,000 $68,240,000 $64,375,000
Credit facility in the United Kingdom; interest at the bank's
overdraft rate plus 2.75%. Facility is secured by the assets of
Interface Graphics. 237,000 162,000 241,000
Credit facilities in the United Kingdom; interest at the bank's
overdraft rate plus 1.85%. Facility is secured by the accounts
receivable of Pre-Press. 631,000 531,000 621,000
Credit facilities in the United Kingdom; interest at the bank's
overdraft rate plus 2.00%. Facility is secured by the accounts
receivable of Big Bills. 316,000 316,000 236,000
Subordinated loan matures in March 2004; base interest of 12 1/2%
plus 0.25% the first day after the first anniversary of the
Note; plus 0.25% following the last day of each 90-day period
until payment in full. -- -- 10,000,000
Subordinated loan matures in August 2006; base interest of 14%. 20,186,000 20,186,000 --
Notes payable for certain equipment, maturing on dates between
October 1998 and September 2003, payable in monthly installments
of $22,000 until October 1998 and $14,000 thereafter, including
interest at 8.54% and 8.4%, respectively. -- 386,000 454,000
Notes payable for certain equipment, maturing on December 2004,
each payable in monthly installments of $9,000, including
interest at 8.66% and 9.56%, respectively. -- 833,000 --
Senior subordinated note investment fee, due May 2001. -- -- 1,500,000
Other 308,000 170,000 220,000
--------------------------------------------------
90,824,000 77,647,000
Less: current portion of long-term debt 1,351,000 1,384,000
--------------------------------------------------
Long-term debt $89,473,000 $76,263,000
==================================================
BANK CREDIT FACILITIES. On September 30, 1999, the Company's revolving
line of credit facility was increased to $80,000,000. As of February 29, 2000,
the Company had an outstanding balance of $68,240,000 under the revolving credit
facility, bearing interest at rates ranging from 9.34% to 11% per annum. The
Company is in compliance with all debt covenants.
In September 1999, upon prepayment of the Company's $10,000,000
subordinated loan, the lender opted to have the interest of such loan paid in
warrants to purchase Common Stock of
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UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
the Company. As a result, the Company issued warrants to purchase 208,150 shares
of the Company's Common Stock at an exercise price of $0.01 per share to such
lender. Such amount approximated the fair market value of the related accrued
interest. Subject to certain limitations, the Company has granted registration
rights, including "demand" registration rights, to such lender.
In September 1999, the Company borrowed a principal amount of $20,000,000
pursuant to another subordinated unsecured loan (the "Subordinated Loan"). The
Subordinated Loan matures in August 2006 and bears interest at 14% per annum.
The Company is permitted to defer the payment of up to 2/14ths of the amount of
interest due on any regularly scheduled interest payment date. Any such deferred
interest shall be deemed to be included in the principal amount of the
Subordinated Loan. The Company is obligated to prepay without premium the
greater of (i) $10,000,000 or (ii) one-half of the then outstanding principal
amount of the Subordinated Loan in August 2005. In addition, on any prepayments
of the Subordinated Loan made prior to September 1, 2002, the Company will incur
an additional premium equal to the Make Whole Amount, as defined. For
prepayments made after September 1, 2002, such additional premium shall be 3.0%.
Such additional premium shall be reduced by 100 basis points on each September 1
thereafter until September 1, 2005. In connection with the Subordinated Loan,
the Company issued seven-year warrants to the lender to purchase 690,134 shares
of the Company's Common Stock at an exercise price of $5.425 per share. Subject
to certain limitations, the Company granted registration rights, including
"demand" registration rights, to such lender. The warrants issued to the lender,
which were deemed to have a value of approximately $2,500,000, subject to an
independent appraisal, have been recorded as deferred financing costs, and are
being amortized on a straight-line basis over approximately seven years.
In October 1999, the Company entered into an interest rate collar agreement
on $35,000,000 of variable rate bank debt. Under this interest rate collar
agreement, the Company is required to pay interest at the higher of 6.12% or the
Company's current rate (6.33% at February 29, 2000), to a maximum of 7.80% per
annum, as defined. The interest rate collar agreement terminates on October 29,
2001. The Company's estimated credit exposure related to the interest rate
collar agreement is summarized as follows:
Notional Credit
Amount Exposure
------ --------
Interest rate collar agreement $35,000,000 $37,000
The notional amount of the derivative does not represent the amount
exchanged by the parties, and is not a measure of the exposure of the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates.
-9-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
The Company is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their current credit
ratings.
NOTE D - SEGMENT INFORMATION:
The Company has two reportable segments: the media solutions division and
premedia services division. The segment information for the three-month and
six-month periods ended February 28, 1999 have been restated to conform to the
2000 segment reporting format.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales and transfers are recorded
at the Company's cost; there is no intercompany profit or loss on intersegment
sales or transfers.
The following summarizes the operations by geographic segment for the three
months and six months ended February 29, 2000 and February 28, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 29, 2000 FEBRUARY 28, 1999
----------------------------------------------------------------------------------------------------------
UNITED UNITED UNITED UNITED
STATES EUROPE STATES EUROPE STATES EUROPE STATES EUROPE
----------------------------------------------------------------------------------------------------------
Net sales $14,832,000 $ 8,177,000 $12,100,000 $ 3,307,000 $ 30,260,000 $16,752,000 $21,083,000 $6,792,000
Income from operations 2,262,000 1,325,000 2,496,000 221,000 4,853,000 2,335,000 3,806,000 350,000
Identifiable assets 111,525,000 19,244,000 95,195,000 9,811,000 111,525,000 19,244,000 95,195,000 9,811,000
The following summarizes operations by industry segment for the three
months and six months ended February 29, 2000 and February 28, 1999:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 29, 2000 FEBRUARY 28, 1999
---------------------------------------------------------------------------------------------------------
MEDIA PREMEDIA MEDIA PREMEDIA MEDIA PREMEDIA MEDIA PREMEDIA
SOLUTIONS SERVICES SOLUTIONS SERVICES SOLUTIONS SERVICES SOLUTIONS SERVICES
---------------------------------------------------------------------------------------------------------
Net sales $12,245,000 $10,764,000 $ 5,151,000 $10,256,000 $25,546,000 $21,466,000 $ 8,895,000 $18,980,000
Income from operations 2,059,000 1,528,000 1,704,000 1,013,000 4,297,000 2,891,000 2,054,000 2,102,000
Identifiable assets 83,801,000 46,968,000 76,157,000 28,849,000 83,801,000 46,968,000 76,157,000 28,849,000
-10-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE E - COMPREHENSIVE INCOME:
Comprehensive income consisted of the following:
THREE MONTHS ENDED, SIX MONTHS ENDED,
----------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
----------------------------------------------------------------------------
Net income $ 282,000 $ 454,000 $ 866,000 $ 824,000
Net change in foreign currency
translation adjustment (224,000) (217,000) (288,000) (300,000)
-------- -------- -------- --------
Comprehensive income $ 58,000 $ 237,000 $ 578,000 $ 524,000
As of February 29, 2000 and February 28, 1999, the cumulative other
comprehensive loss consisted of the Company's foreign currency translation
adjustment.
NOTE F - MODIFICATION OF X+C ACQUISITION AGREEMENT AND AGREED EARN-OUT PAYMENT:
In April 1999, the Company consummated the acquisition of substantially all
of the assets of Peter X(+C) Limited ("X+C"). The purchase price included an
initial cash payment of $70,000 and the issuance of 40,000 shares ($200,000) of
restricted Common Stock of the Company. In addition, the purchase price included
a deferred cash payment of $100,000 payable on April 1, 2000 and an earn-out
payment of up to $1,000,000 in cash or some combination of cash and restricted
Common Stock of the Company in the event X+C achieved certain financial
performance objectives. In January 2000, the Company and X+C agreed to amend the
purchase agreement to pay the earn-out payment in advance on a bi-weekly basis
to the sole shareholder of X+C.
NOTE G - SUBSEQUENT EVENTS:
LEGAL PROCEEDINGS:
On January 14, 2000, the Company filed a complaint against Ehud Aloni, the
former President of Mega Art and a 10% stockholder of the Company, in the United
States District Court of the Southern District of New York. By the action, the
Company sought to enforce the restrictive covenants set forth in Mr. Aloni's
employment agreement with the Company. On January 14, 2000, the court granted
the Company a temporary restraining order against Mr. Aloni. The Company was
also seeking $175 million in damages. On January 24, 2000, the Company
voluntarily dismissed the case against Mr. Aloni.
On January 20, 2000, Ehud Aloni commenced a lawsuit (the "Aloni Action")
against the Company and Mega Art in the Supreme Court of the State of New York,
County of New York (the "Court") claiming, among other things, that the Company
had breached Mr. Aloni's employment agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.
-11-
UNIDIGITAL INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
On February 9, 2000, the Company and Mega Art commenced a lawsuit (the
"Company's Action") against Mr. Aloni, among others, in the Court. The Company
sought to enforce the restrictive covenants set forth in Mr. Aloni's employment
agreement with the Company.
On March 9, 2000, the Company and Mr. Aloni and certain of the defendants
in the Company's Action entered into a settlement agreement (the "Settlement
Agreement") whereby each of the parties thereto agreed to release the other
parties from all claims arising out of the Company's Action and the Aloni
Action. In connection with the Settlement Agreement, Mr. Aloni entered into a
new employment agreement with the Company and the Company agreed to pay a
portion of the earn-out payment to Mr. Aloni ($550,000). In addition, the
Company agreed to consummate the Inlarge Acquisition.
ACQUISITIONS:
In March 2000, the Company acquired a portion of the assets of Inlarge LLC,
a New York limited liability company located in Jersey City, New Jersey (the
"Inlarge Acquisition"). The initial purchase price was $125,000 plus possible
additional consideration pending a final determination of the net asset value of
the assets acquired.
In March 2000, the Company purchased all of the issued and outstanding
shares of Colour Network Limited (the "Colour Network Acquisition"), located in
Glasgow, Scotland. The purchase price was the issuance of 40,000 shares
(approximately $140,000) of restricted Common Stock of the Company.
In April 2000, the Company purchased all of the issued and outstanding
shares of Makom Media Ltd. and its wholly-owned subsidiaries Makom Media GmbH
and Makom Media Service France S.a.r.l (the "Makom Acquisition"). The initial
aggregate purchase price was $1,300,000, which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company is a media services company that provides large and grand
format digital image solutions combined with a full suite of digital "premedia"
(previously referred to as prepress) services to advertising agencies,
retailers, publishers, graphic design firms, consumer product companies,
government agencies, individual graphic artists and marketing and communications
firms in both the United States and Europe. During 1999, the Company began
delivering its services through two principal business divisions. The Media
Solutions division creates and produces large and grand format images for
out-of-home advertising and develops new media concepts. The Premedia Services
division provides digital premedia, including retouching and short-run digital
printing services.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission or press releases or
oral statements made by or with the approval of an authorized executive officer
of the Company. These forward-looking statements, such as statements regarding
anticipated future revenues, capital expenditures, Year 2000 compliance and
other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. Potential risks and uncertainties that could affect
the Company's future operating results include, but are not limited to: (i)
economic conditions, including economic conditions related to the media services
industry; (ii) the availability of equipment from the Company's vendors at
current prices and levels; (iii) the intense competition in the markets for the
Company's products and services; (iv) the Company's ability to integrate
acquired companies and businesses in a cost-effective manner; (v) the Company's
ability to effectively implement its branding strategy; and (vi) the Company's
ability to develop, market, provide, and achieve market acceptance of new
service offerings to new and existing clients.
RESULTS OF OPERATIONS
The consolidated financial information includes both the Company's United
States operations and its European operations.
-13-
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
----------------------------------------------------------
NET SALES. Net sales for the three months ended February 29, 2000 ("Second
Quarter of Fiscal 2000") increased by 49%, or $7,602,000, to $23,009,000 from
$15,407,000 for the three months ended February 28, 1999 ("Second Quarter of
Fiscal 1999"). Net sales for the Company's United States operations increased by
23%, or $2,732,000, from $12,100,000 in the Second Quarter of Fiscal 1999 to
$14,832,000 in the Second Quarter of Fiscal 2000. Net sales for the Company's
European operations increased by 147%, or $4,870,000, from $3,307,000 in the
Second Quarter of Fiscal 1999 to $8,177,000 in the Second Quarter of Fiscal
2000. Net sales for the Company's Media Solutions division increased by 138%, or
$7,094,000, from $5,151,000 in the Second Quarter of Fiscal 1999 to $12,245,000
in the Second Quarter of Fiscal 2000. This increase was attributable primarily
to an increase in net sales in the Company's Mega Art operations and resulting
from the Company's European acquisitions. Net sales for the Company's Premedia
Services division increased by 5%, or $508,000, from $10,256,000 in the Second
Quarter of Fiscal 1999 to $10,764,000 in the Second Quarter of Fiscal 2000. This
increase was attributable primarily to an increase in net sales resulting from
the Company's acquisitions in the United Kingdom.
COST OF SALES. Cost of sales for the Second Quarter of Fiscal 2000
increased by 82%, or $5,394,000, to $11,980,000 from $6,586,000 for the Second
Quarter of Fiscal 1999. As a percentage of net sales, cost of sales increased
from 43% for the Second Quarter of Fiscal 1999 to 52% for the Second Quarter of
Fiscal 2000. Cost of sales for the Company's United States operations increased
as a percentage of net sales from 39% for the Second Quarter of Fiscal 1999 to
52% for the Second Quarter of Fiscal 2000. Cost of sales for the Company's
European operations decreased as a percentage of net sales from 55% for the
Second Quarter of Fiscal 1999 to 53% for the Second Quarter of Fiscal 2000. Cost
of sales for the Company's Media Solutions division decreased as a percentage of
net sales for such division from 68% in the Second Quarter of Fiscal 1999 to 55%
in the Second Quarter of Fiscal 2000. Cost of sales for the Second Quarter of
1999 were high due to the Company's preparation for expansion of its large
format business. Cost of sales for the Company's Premedia Services division
increased as a percentage of net sales for such division from 30% in the Second
Quarter of Fiscal 1999 to 49% in the Second Quarter of Fiscal 2000. Such
increase was attributable primarily to the change in product mix to include more
digital print services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased by 22%, or $1,338,000, from
$6,104,000 for the Second Quarter of Fiscal 1999 to $7,442,000 for the Second
Quarter of Fiscal 2000. Such increase was attributable primarily to the
increased level of operations. As a percentage of net sales, SG&A decreased from
40% for the Second Quarter of Fiscal 1999 to 32% for the Second Quarter of
Fiscal 2000. SG&A decreased as a percentage of net sales as a result of
increased sales volume.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the Second Quarter of Fiscal 2000 increased by 32%, or $870,000, to $3,587,000
from $2,717,000 for the Second Quarter of Fiscal 1999. Of this amount,
$2,262,000 was contributed by the Company's United States operations and
$1,325,000 by the Company's European operations. In addition, of
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this amount, $2,059,000 was contributed by the Company's Media Solutions
division and $1,528,000 from the Company's Premedia Services division.
NET INTEREST EXPENSE. Net interest expense for the Second Quarter of Fiscal
2000 increased by 71%, or $1,177,000, to $2,837,000 from $1,660,000 for the
Second Quarter of Fiscal 1999. This increase resulted from increased interest
payments incurred in connection with the Subordinated Loan and borrowings under
the Company's credit facilities.
INCOME TAXES. Income taxes for the Second Quarter of Fiscal 2000 decreased
by 5%, or $24,000, to $468,000 from $492,000 for the Second Quarter of Fiscal
1999.
DISCONTINUED OPERATIONS. In August 1999, the Company sold its New York
operations for on-demand print and prepress services. In addition, the San
Francisco and London on-demand print and prepress business ceased operations and
closed or reallocated their facilities to other segments, respectively, prior to
August 31, 1999. There were no remaining assets or liabilities related to the
discontinuance of the on-demand print and prepress business as of August 31,
1999. As a result, the Company incurred a loss of $111,000 on discontinued
operations for the Second Quarter of Fiscal 1999.
NET INCOME. As a result of the factors described above, net income for the
Second Quarter of Fiscal 2000 decreased by 38%, or $172,000, to $282,000 as
compared to net income of $454,000 for the Second Quarter of Fiscal 1999.
SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
--------------------------------------------------------
NET SALES. Net sales for the six months ended February 29, 2000 increased
by 69%, or $19,137,000, to $47,012,000 from $27,875,000 for the six months ended
February 28, 1999. Net sales for the Company's United States operations
increased by 44%, or $9,177,000, from $21,083,000 in the six months ended
February 28, 1999 to $30,260,000 in the six months ended February 29, 2000. Net
sales for the Company's European operations increased by 147%, or $9,960,000,
from $6,792,000 in the six months ended February 28, 1999 to $16,752,000 in the
six months ended February 29, 2000. Net sales for the Company's Media Solutions
division increased by 187%, or $16,651,000, from $8,895,000 in the six months
ended February 28, 1999 to $25,546,000 in the six months ended February 29,
2000. This increase was attributable primarily to an increase in net sales in
the Company's Mega Art operations and resulting from the Company's European
acquisitions. Net sales for the Company's Premedia Services division increased
by 13%, or $2,486,000, from $18,980,000 in the six months ended February 28,
1999 to $21,466,000 in the six months ended February 29, 2000. This increase was
attributable primarily to an increase in net sales resulting from the Company's
acquisitions in the United Kingdom.
COST OF SALES. Cost of sales for the six months ended February 29, 2000
increased by 93%, or $12,126,000, to $25,197,000 from $13,071,000 for the six
months ended February 28, 1999. As a percentage of net sales, cost of sales
increased from 47% for the six months ended February 28, 1999 to 54% for the six
months ended February 29, 2000. Cost of sales for the Company's United States
operations increased as a percentage of net sales from 43% for the six
-15-
months ended February 28, 1999 to 52% for the six months ended February 29,
2000. Cost of sales for the Company's European operations decreased as a
percentage of net sales from 58% for the six months ended February 28, 1999 to
57% for the six months ended February 29, 2000. Cost of sales for the Company's
Media Solutions division decreased as a percentage of net sales for such
division from 61% for the six months ended February 28, 1999 to 54% for the six
months ended February 29, 2000. Cost of sales for the six months ended February
28, 1999 were high due to the Company's preparation for expansion of its large
format business. Cost of sales for the Company's Premedia Services division
increased as a percentage of net sales for such division from 40% for the six
months ended February 28, 1999 to 53% for the six months ended February 29,
2000. Such increase was attributable primarily to the change in product mix to
include more digital print services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased by 40%, or
$4,175,000, from $10,452,000 for the six months ended February 28, 1999 to
$14,627,000 for the six months ended February 29, 2000. Such increase was
attributable primarily to the increased level of operations. As a percentage of
net sales, SG&A decreased from 37% for the six months ended February 28, 1999 to
31% for the six months ended February 29, 2000. SG&A decreased as a percentage
of net sales as a result of increased sales volume.
RESTRUCTURING EXPENSES. During the six months ended February 28, 1999, the
Company continued to consolidate its United Kingdom financial printing
operations. As a result of such consolidation, the Company incurred
restructuring expenses of $196,000.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the six months ended February 29, 2000 increased by 73%, or $3,032,000, to
$7,188,000 from $4,156,000 for the six months ended February 28, 1999. Of this
amount, $4,853,000 was contributed by the Company's United States operations and
$2,335,000 by the Company's European operations. In addition, of this amount,
$4,297,000 was contributed by the Company's Media Solutions division and
$2,891,000 by the Company's Pemedia Services division.
NET INTEREST EXPENSE. Net interest expense for the six months ended
February 29, 2000 increased by 127%, or $3,109,000, to $5,555,000 from
$2,446,000 for the six months ended February 28, 1999. This increase resulted
from increased interest payments incurred in connection with the Subordinated
Loan and borrowings under the Company's credit facilities.
INCOME TAXES. Income taxes for the six months ended February 29, 2000
decreased by 1%, or $7,000, to $767,000 from $774,000 for the six months ended
February 28, 1999.
NET INCOME. As a result of the factors described above, net income for the
six months ended February 29, 2000 increased by 5%, or $42,000, to $866,000 as
compared to net income of $824,000 for the six months ended February 28, 1999.
-16-
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
CASH FLOW. Net cash used in operating activities was $11,798,000 for the
first six months of fiscal 2000 and $3,654,000 for the first six months of
fiscal 1999. Net cash used in investing activities for the acquisition of
property and equipment was $1,830,000 for the first six months of fiscal 2000
and $711,000 for the first six months of fiscal 1999. For the first six months
of fiscal 2000 and fiscal 1999, the Company acquired equipment under capital
leases of $213,000 and $2,597,000, respectively, and made payments under capital
leases of $1,364,000 and $1,157,000, respectively. Net bank borrowings provided
funds of $14,029,000 for the first six months of fiscal 2000 and $29,543,000 for
the first six months of fiscal 1999.
The Company expects that cash flow from operations and available borrowings
will be sufficient to fund its capital lease obligations, debt service payments,
potential earn-outs, capital expenditures and operations for at least 12 months.
The Company may require additional financing to consummate future acquisitions.
There can be no assurance that the Company will be able to secure such
additional financing on terms favorable to the Company. The Company is in
compliance with all debt covenants.
WORKING CAPITAL. The Company's working capital increased by $14,029,000
from $3,509,000 at August 31, 1999 to $17,538,000 at February 29, 2000.
SUBSEQUENT EVENTS. In March 2000, the Company consummated the Inlarge
Acquisition. The initial purchase price was $125,000 plus possible additional
consideration pending a final determination of the net asset value of the assets
acquired.
In March 2000, the Company consummated the Colour Network Acquisition. The
purchase price was the issuance of 40,000 shares (approximately $140,000) of
restricted Common Stock of the Company.
In April 2000, the Company consummated the Makom Acquisition. The initial
aggregate purchase price was $1,300,000, which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.
YEAR 2000 COMPLIANCE
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
-17-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Although the Company cannot accurately determine the precise effect thereof
on its operations, it does not believe inflation, currency fluctuations or
interest rate changes have historically had a material effect on revenues, sales
or results of operations. Inflation, currency fluctuations and changes in
interest rates have, however, at various times, had significant effects on the
economies of the United States and Europe and could adversely impact the
Company's revenues, sales and results of operations in the future. If there is a
material adverse change in the relationship between the Pound Sterling and other
European currencies and the United States Dollar, such change would adversely
affect the results of the Company's European operations as reflected in the
Company's financial statements. The Company has not hedged its exposure with
respect to this currency risk, and does not expect to do so in the future, since
it does not believe that it is practicable for it to do so at a reasonable cost.
On October 29, 1999, the Company entered into an interest rate collar
agreement on $35,000,000 of variable rate bank debt. Under this interest rate
collar agreement, the Company is required to pay interest at the higher of 6.12%
or the Company's current rate (6.33% at February 29, 2000), to a maximum of
7.80% per annum, as defined. The interest rate collar agreement terminates on
October 29, 2001. The Company's estimated credit exposure related to the
interest rate collar agreement is summarized as follows:
Notional Credit
Amount Exposure
------ --------
Interest rate collar agreement $35,000,000 37,000
The notional amount of the derivative does not represent the amount
exchanged by the parties, and is not a measure of the exposure of the Company
through its use of derivatives. The amounts exchanged are calculated on the
basis of the notional amounts and the other terms of the derivatives, which
relate to interest rates.
The Company is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but it does not expect any
counterparties to fail to meet their obligations given their current credit
ratings.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On January 14, 2000, the Company filed a complaint against Ehud Aloni, the
former President of Mega Art and a 10% stockholder of the Company, in the United
States District Court of the Southern District of New York. By the action, the
Company sought to enforce the restrictive covenants set forth in Mr. Aloni's
employment agreement with the Company. On January 14, 2000, the court granted
the Company a temporary restraining order against Mr. Aloni. The Company was
also seeking $175 million in damages. On January 24, 2000, the Company
voluntarily dismissed the case against Mr. Aloni.
On January 20, 2000, Ehud Aloni commenced the Aloni Action against the
Company and Mega Art in the Court claiming, among other things, that the Company
had breached Mr. Aloni's employment agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.
On February 9, 2000, the Company and Mega Art commenced the Company's
Action against Mr. Aloni, among others, in the Court. The Company sought to
enforce the restrictive covenants set forth in Mr. Aloni's employment agreement
with the Company.
On March 9, 2000, the Company and Mr. Aloni and certain of the defendants
in the Company's Action entered into the Settlement Agreement whereby each of
the parties thereto agreed to release the other parties from all claims arising
out of the Company's Action and the Aloni Action. In connection with the
Settlement Agreement, Mr. Aloni entered into a new employment agreement with the
Company and the Company agreed to pay a portion of the earn-out payment to Mr.
Aloni ($550,000). In addition, the Company agreed to consummate the Inlarge
Acquisition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Subsequent to the end of the quarter, on March 8, 2000, the Company agreed
to issue 5,000 shares of restricted Common Stock of the Company to Anthony
Senatore in connection with Mr. Senatore's employment with the Company.
Subsequent to the end of the quarter, on March 9, 2000, the Company agreed
to issue 27,714 and 3,695 shares of restricted Common Stock of the Company to
Amit Primor and Jeffrey Rothman, respectively, pursuant to the Settlement
Agreement.
Subsequent to the end of the quarter, on March 22, 2000, the Company agreed
to issue 32,000 and 8,000 shares of restricted Common Stock of the Company to
Robert Gray and James Gray, respectively, as partial consideration for the
Colour Network Acquisition.
Subsequent to the end of the quarter, on April 4, 2000, the Company agreed
to issue 10,000 shares of restricted Common Stock of the Company to Nadav Chen
in connection with Mr. Chen's employment with the Company.
-19-
No underwriter was employed by the Company in connection with the issuances
and sales of the securities described above. The Company believes that the
issuances and sales of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the shares issued to the employees, Rule 701 under the Act as a
transaction made pursuant to a written compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate legends have been affixed to the stock certificates issued to all
recipients of such shares. All recipients had adequate access to information
about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on February 24,
2000.
There were 3,966,048 shares present at the meeting in person or by proxy.
The results of the vote taken at such meeting with respect to each nominee for
director were as follows:
NOMINEE FOR WITHHELD
------- --- --------
William E. Dye 3,194,379 771,669
Peter Saad 3,195,779 770,269
Anthony Manser 3,195,779 770,269
Harvey Silverman 3,331,172 634,876
David Wachsman 3,331,172 634,876
Also at the meeting, a vote was taken on the proposal to grant authority to
the Company's Board of Directors to amend the Certificate of Incorporation of
the Company to change the Company's name from Unidigital Inc., to MegaMedia Inc.
Of the 3,966,048 shares present at the meeting in person or by proxy, 3,945,662
shares were voted in favor of such proposal, 19,486 shares were voted against
such proposal and 900 shares abstained from voting.
Also at the meeting, a vote was taken on the proposal to amend the 1997
Equity Incentive Plan, as amended, to increase the number of shares of Common
Stock reserved for the issuance upon exercise of options granted under such plan
from 1,000,000 to 1,300,000. Of the 3,966,048 shares present at the meeting in
person or by proxy, 2,844,528 shares were voted in favor of such proposal,
515,330 shares were voted against such proposal and 606,190 shares abstained
from voting.
Finally, a vote was taken at the meeting on the proposal to ratify the
appointment of Ernst & Young LLP as the independent auditors of the Company for
the fiscal year ending August 31, 2000. Of the 3,966,048 shares present at the
meeting in person or by proxy, 3,343,472 shares were voted in favor of such
proposal, 16,086 shares were voted against such proposal and 606,490 shares
abstained from voting.
-20-
ITEM 5. OTHER INFORMATION.
In March 2000, the Company consummated the Inlarge Acquisition. The Inlarge
Acquisition enhances the Company's capacity to produce grand-scale outdoor
advertising display. The initial purchase price was $125,000 plus possible
further consideration pending a final determination of the net asset value of
the assets acquired.
In March 2000, the Company consummated the Colour Network Acquisition. The
Colour Network Acquisition continues the expansion of the Company's Premedia
Services in the United Kingdom. The purchase price was the issuance of 40,000
shares (approximately $140,000) of restricted Common Stock of the Company.
In April 2000, the Company consummated the Makom Acquisition. The Makom
Acquisition enhances the Company's ability to develop and promote Media
Solutions concepts of large-format indoor and outdoor advertising in Germany,
France and other European countries. The initial aggregate purchase price was
$1,300,000, which included the issuance of 180,087 shares (approximately
$800,000) of restricted Common Stock of the Company.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Promissory Note dated March 9, 2000 made
by Unidigital Inc. in favor of Ehud Aloni
in the principal amount of $550,000.
10.1 Settlement Agreement dated as of March 9,
2000 among Ehud Aloni, Sigal Primor, Amit
Primor, Nadav Chen, Jeffrey E. Rothman,
Inlarge LLC (a/k/a Enlarge LLC),
Unidigital Inc. and Mega Art Corp.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
-21-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIDIGITAL INC.
DATE: April 19, 2000 By: /s/William E. Dye
----------------------------
William E. Dye,
Chief Executive Officer
(Principal Executive Officer)
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